Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $135,100. Depreciation recorded on store equipment for the year amounted to $22,300. 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	$53,630		$49,340
Accounts receivable (net)	38,450		36,460
Merchandise inventory	52,500		55,510
Prepaid expenses	5,900		4,690
Accounts payable (merchandise creditors)	50,250		46,680
Wages payable	27,460		30,490

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

Part a : Cash Flows from Operating Activities

Statement of Cash Flows (Partial)

Part 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 is received.

All the best...