Question

The net income reported on the income statement for the current year was $361,300. Depreciation recorded on store equipment for the year amounted to $15,520. 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

$40,180

$40,070

Accounts receivable (net)

30,070

28,060

Merchandise inventory

40,390

45,420

Prepaid expenses

3,470

4,840

Accounts payable (merchandise creditors)

38,610

37,710

Wages payable

20,330

24,800

Required:

A.

Prepare the Cash Flows from Operating Activities section of the statement of cash flows <javascript:void(0)>, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.

B.

Briefly explain why net cash flow from operating activities is different from net income.

Answer 1

Answer-A)-

STATEMENT OF CASH FLOWS PARTIAL (USING INDIRECT METHOD)
FOR THE YEAR ENDED
Particulars		Amount
		$
Cash flow from operating activities
Net Income		361300
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation		15520
Change in operating assets & liabilities
Decrease in merchandie inventory		5030
Increase in accounts payable		900
Increase in accounts receivable		-2010
Decrease in prepaid expenses		1370
Decrease in wages payable		-4470
Net cash flow from operating activities		377640

Answer-B)- Net cash flow from operating activities is totally different from net income because cash flows from operating activities section makes adjustments to net income and excludes non-cash expenses like depreciation, amortization and changes in working capital.