Question

The net income reported on the income statement for the current year was $146,700. Depreciation recorded on store equipment for the year amounted to $24,200. 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	$58,390		$53,130
Accounts receivable (net)	41,870		39,260
Inventories	57,160		59,770
Prepaid expenses	6,420		5,050
Accounts payable (merchandise creditors)	54,710		50,260
Wages payable	29,900		32,830

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

Cash flows from Operating activities:
Net Income for the year				146700
Adjustment required
Depreciation				24200
Changes in current operating assets and liabilities
Increase in Accounts receivable				-2610
Decrease in Inventory				2610
Increase in Prepaid expense				-1370
Increase in Accounts payable				3910
Decrease in Wages payable				-2930
Net cash provided from Operating activities				170510
Req b:
For example, revenues are recorded in the income statement when earned (i.e. services has been performed).
However, it is recorded in cash flow statement, when it is actually received.