Question

The net income reported on the income statement for the current year was $121,900. Depreciation recorded on store equipment for the year amounted to $20,100. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

	End of Year		Beginning of Year
Cash	$47,050		$42,820
Accounts receivable (net)	33,730		31,640
Inventories	46,060		48,170
Prepaid expenses	5,180		4,070
Accounts payable (merchandise creditors)	44,090		40,510
Wages payable	24,090		26,460

a. Prepare the “Cash flows from operating activities” section of the statement of cash flows, using the indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Statement of Cash Flows (partial)
Cash flows from operating activities:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
Net cash flow from operating activities		$

b. Cash flows from operating activities differs from net income because it does not use the   of accounting. For example revenues are recorded on the income statement when

Answer 1

a) Cash Flow Statement - Indirect Method
Cash flow from Operating Activities:
Net Income	121900
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	20100
Changes in current operating assets and liabilities:
Increase in Account Receivable	-2090
Decrease in Inventory	2110
Increase in Prepaid Expenses	1110
Increase in Accounts payables	3580
Decrease in Wages Payable	-2370
Net Cash Flow from Operating Activities	144340

b. Cash flows from operating activities differs from net income because it does not use the accurual basis of accounting. For example revenues are recorded on the income statement when they are earned, not when cash is received.