Question

The net income reported on the income statement for the current year was $73,600. Depreciation recorded on store equipment for the year amounted to $27,400. 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	$23,500	$18,700
Accounts receivable (net)	56,000	48,000
Merchandise inventory	35,500	40,000
Prepaid expenses	4,750	7,000
Accounts payable (merchandise creditors)	21,800	16,800
Wages payable	4,900	5,800

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.

Amount Descriptions

Amortization of intangible assets

Decrease in accounts payable

Decrease in accounts receivable

Decrease in merchandise inventory

Decrease in prepaid expenses

Decrease in wages payable

Depreciation

Increase in accounts payable

Increase in accounts receivable

Increase in merchandise inventory

Increase in prepaid expenses

Increase in wages payable

Net cash flow from operating activities

Net cash flow used for operating activities

Net income

Net loss

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.

Statement of Cash Flows (partial)

1	Cash flows from operating activities:
2
3	Adjustments to reconcile net income to net cash flow from operating activities:
4
5	Changes in current operating assets and liabilities:
6
7
8
9
10
11

Answer 1

1)

cash flow from operating activities
Net income		73600
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	27400
Changes in current operating assets and liabilities:
Increase account receivable	-8000
Decrease inventory	4500
Decrease prepaid expense	2250
Increase account payable	5000
Decrease wages payable	-900
		30250
Net cash flow from operating activities		103850

2) Net income includes accured basis revenue and expense and non cash expense but net cash flow from operating activities includes only cash activities (revenue and expense) so net income is differ from net cash flow from operating activities