Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $144,400. Depreciation recorded on store equipment for the year amounted to $23,800. 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	$57,180		$52,030
Accounts receivable (net)	41,000		38,450
Merchandise inventory	55,980		58,530
Prepaid expenses	6,290		4,940
Accounts payable (merchandise creditors)	53,580		49,220
Wages payable	29,280		32,150

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 out flows, 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
Statement of Cash Flows (partial)
Cash flows from operating activities:
Net income	144400
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	23800
Changes in current operating assets and liabilities:
Increase in accounts receivable	-2550
Decrease in merchandise inventory	2550
Increase in prepaid expenses	-1350
Increase in accounts payable	4360
Decrease in wages payable	-2870
Net cash flow from operating activities		168340
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 they are earned