Question

The net income reported on the income statement for the current year was $423,900. Depreciation recorded...

The net income reported on the income statement for the current year was $423,900. Depreciation recorded on store equipment for the year amounted to $17,560. 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 $42,670 $40,170
Accounts receivable (net) 30,670 27,430
Inventories 38,830 45,750
Prepaid expenses 3,680 4,890
Accounts payable (merchandise creditors) 39,630 35,780
Wages payable 21,610 23,900

Required:

a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.
b. Briefly explain why net cash flow from operating activities is different than net income.
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Answer #1
Cash Flow Statement - Indirect Method
Cash flow from Operating Activities
Net Income 423900
Adjustments to reconcile Net Income to net cash flow from operating activities
Depreciation 17560
Changes in current operating assets and liabilities:
Increase in Accounts Receivable ( 30670 - 27430 ) -3240
Decrease in Inventory ( 38830 - 45750 ) 6920
Decrease in prepaid exp. 1210
INcrease in accounts payable 3850
Decrease in Wages payable -2290
Net Cash From Operating Activities 447910
Helping tool for
Cash flow from Operating Activities
Net loss/ Net income
Add:- Depreciation
Add:- Amortisation / loss
LesS:- gain
Operating Profit before WC Changes
Add:- Decrease In Current Assets
Add:- Increase in current Liabilities
Less :-Increase In Current Assets
Less:- Decrease in current Liabilities
Net Cash From Operating Activities
Part B
Net Cash From Operating Activities is different from NI because a lot of adjustments have been made to NI to arrive at the
Net Cash From Operating Activities as Net cash from OA is concerned with the actual cash outflow and cash inflow whereas net income also
considers accrued revenues and expenses and deferred revenues and expenses.
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