Question

The net income reported on the income statement for the current year was $153,400. Depreciation recorded on store equipment for the year amounted to $25,300. 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	$61,820		$56,260
Accounts receivable (net)	44,320		41,580
Inventories	60,520		63,290
Prepaid expenses	6,800		5,340
Accounts payable (merchandise creditors)	57,930		53,220
Wages payable	31,650		34,770

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	$
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation
Changes in current operating assets and liabilities:
Increase in accounts receivable
Decrease in inventories
Increase in prepaid expenses
Increase in accounts payable
Decrease in wages payable
Net cash flow from operating activities		$

Answer 1

Notes:

1.Deprication expense(being a non-cash expense) on the income statement  did not involve a cash outflow.Therefore,it is added back to the net income to obtain cash flow from operating activities.

2.Increase or Decrease in Current Assets:Current assets include Inventory,Accounts Receivable,Prepaid Expenses.Increase in Current Assets are deducted from net income to arrive at cash flow from operating activities.Decrease in non cash current assets are added to net income to arrive at cash flow from operating activities.

3.Increase or Decrease in Current Liabilities:Current liabilities include Accounts payable,Wages payable.Increase in Current liabilities are added to net income to obtain cash flow from operating activities and decrease in current laibilities are subtracted from net income.