Respuesta :
Wireless solutions records operating expenses in its cash flow during the year as $869,000.
From the case, we know that Wireless solution has:
Operating expene = $865,000
Increase in prepaid rent = $18,000
Increase in salaries payable = $14,000
In cash flow, every activities that produce money should be recorded as positive amounts and called as cash inflow. Meanwhile any activities that spend and use cash will be recorded in negative amounts and called as cash outflow.
Now let's define the relationship of each increase scenario with cash flow.
Prepaid rent is a form of prepairds expenses. Prepaid expenses are paid ahead of time and being amortized over the time period of benefit. Any increase in prepaid expense means that the current amortization should be greater than the previous expected expense. Any decrease in prepaid expense refers to the lower amortization for the prepaid account than the expected amount. Hence, the increase of prepaid rent will generate more cash outflow.
Liabilities are cash that a company owes to a lender or any third parties to finance the assets or expenses. An increase in liability account means the more available cash to be allocated to another areas. A decrease in liabilities means that the liabilities are paid with cash by the company.
In this case, an increase in salaries payable means that the company holds some cash originally prepaid to pay its emlployees' salaries. It shows an cash inflow movement.
From the explanation above, we could calculate the total operating expense of Wireless solution.
Please note that any cash outflow will be recorded as negative amounts and we are using expenses' perspective.
Total operating expense = Operating expense + increase in prepaid rent - increase in salaries payable
Total operating expense = $(865,000) + $(18,000) - $14,000
Total operating expense = $(869,000) --> cash outflow
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