Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $146,100. Depreciation recorded on store equipment for the year amounted to $24,100. 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	$58,590		$53,320
Accounts receivable (net)	42,010		39,400
Merchandise inventory	57,360		59,990
Prepaid expenses	6,440		5,070
Accounts payable (merchandise creditors)	54,900		50,440
Wages payable	30,000		32,950

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

Cash flows from operating activities:

Net income

146100

Adjustments to reconcile net income to net cash flow from operating activities:

Depreciation

24100

Changes in current operating assets and liabilities:

Increase in accounts receivable

-2610

Decrease in merchandise inventory

2630

Increase in prepaid expenses

-1370

Increase in accounts payable

4460

Decrease in wages payable

-2950

Net cash flow from operating activities

170360

b

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