Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $123,300. Depreciation recorded on store equipment for the year amounted to $20,300. 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	$47,100		$42,860
Accounts receivable (net)	33,770		31,670
Inventories	46,110		48,220
Prepaid expenses	5,180		4,070
Accounts payable (merchandise creditors)	44,130		40,550
Wages payable	24,120		26,490

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. 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:
Net income	$123300
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	20300
Changes in current operating assets and liabilities:
Increase account receivable	-2100
Decrease inventory	2110
Increase prepaid expense	-1110
Increase account payable	3580
Decrease wages payable	-2370
Net cash flow from operating activities		$143710

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