Plz help me understanding this question why both the values got subtracted from operating income.

80050

- 2200

-1520

=76330

Plz help me understanding this question why both the values got subtracted from operating income.

80050

- 2200

-1520

=76330

You paid extra cash to increase your prepaid insurance.

You paid extra cash to decrease your utilities payable.

Prepaid insurance increased.

How did that happen?

You paid for insurance that you haven’t expensed yet. Therefore, your cash outflow was greater than your insurance expense. Therefore, to get from net income to cash flow from operations, you have to subtract the extra cash you paid.

Utilities payable decreased.

How did that happen?

You paid more cash for utilities than your utilities expense this year; i.e., your cash outflow was greater than your utilities expense. Therefore, to get from net income to cash flow from operations, you have to subtract the extra cash you paid.

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My pleasure.

I think the prepaid insurance decreased from 10600 to 8400. could you help me understand this. I really appreciated .

You’re concerned here about the cash the company paid for Other Operating Expenses for a company using the indirect method.

We start by looking at total 2015 Other Operating Expenses (80,050).

Subtract what was not paid for in cash, to get the answer.

Prepaid Insurance Expenses decreased, so the company burned through some of its prepaid expenses it didn’t pay cash for this.

Accrued Utilities Payable also increased, it means the company increased its amount of unpaid utility bills (also hasn’t paid cash for them).

So you subtract the 2015-2014 changes in these 2 items from 80,050 to get the cash answer. Since the problem says that Other Operating Expenses in this case only contains Insurance and Utilities, then we can surmise the rest of the 80,050 number (minus the 2 subtractions above) relates to actual cash payments for Insurance Expense and Utilities Expense, within Other Operating Expenses.

If an accountant or someone with accounting expertise has a different explanation then I defer to them of course. But this is how I’d approach it. Cheers you got this

"We start by looking at total 2015 Other Operating Expenses (80,050).

Subtract what was not paid for in cash, to get the answer."

this makes everything clear. thank you so much!!!

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