Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $144,400. Depreciation recorded on store equipment for the year amounted to $23,800. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of YearBeginning of Year

Cash$58,770 $54,070

Accounts receivable (net)42,140 39,960

Inventories57,540 60,830

Prepaid expenses6,460 5,140

Accounts payable (merchandise creditors)55,070 51,150

Wages payable30,090 33,420

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

cash flows from Operating activities
Net Income for the year		1,44,400
Adjustment required
Depreciation			23800
Change in operating assets and liabilities
Increase in Accounts receivable		-2180
Decrease in Inventory		3290
Increase in Prepaid expenses		-1320
Increase in Accounts payable		3920
Decrease in Wages payable		-3330
Net cash provided from Operating activities	168580
Req b.
Cash flows from operating activities differs from net income because it does not use the Cash basis of accounting/
For example, revenues are recorded on the income statement when earned.