Alfonza Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the company’s Year 2 and Year 1 year-end balance sheets:

The Year 2 income statement showed net income of $31,600.

Required
a. Prepare the operating activities section of the statement of cash flows.
b. Explain why the change in the balance in accounts receivable was added to or subtracted from the amount of net income when you completed Requirement a.
c. Explain why the change in the balance in accounts payable was added to or subtracted from the amount of net income when you completed Requirement a.

Transcribed Image Text:

Account Title Accounts receivable Accounts payable Year 2 Year 1 $16,200 7,600 $17,800 9,100