Cash Flows from Operating Activities. Indirect Method The income statement disclosed the following items for the year: Depreciation expense $44,000 Gain on disposal of equipment 25,700 Net income 377,500 The changes in the current asset and liability accounts for the year are as follows: Increase (Decrease) Accounts receivable $6,860 Inventory (3,910) Prepaid Insurance (1,460) Accounts payable (4,650) Income taxes payable 1,460 Dividends payable 1,030 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: Net Income Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Garantiennent nenuinment 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: Net Income Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Gain on disposal of equipment Changes in current operating assets and abilities: Increase in accounts receivable Decrease in Inventory Decrease in prepaid Insurance Decrease in accounts payable Increase in income taxes payable Net cash flow from operating activities O 01 11100 F b. Why is net cash flows from operating activities different than net income? Cash flows from operating activities is based on cash basis of accounting, whereas net income is computed using accrual basis of accounting