Cash Flows from Operating ActivitiesIndirect Method

The income statement disclosed the following items for year:

Depreciation expense	$47,800
Gain on disposal of equipment	27,910
Net income	315,700

The changes in the current asset and liability accounts for the year are as follows:

	Increase (Decrease)
Accounts receivable	$7,450
Inventory	(4,240)
Prepaid insurance	(1,590)
Accounts payable	(5,050)
Income taxes payable	1,590
Dividends payable	1,120

Question Content Area

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.

blank Statement of Cash Flows (partial) For the year ended xxx

Cash flows from operating activities:
DepreciationIncrease in income taxes payableIncrease in inventoriesNet income	$- Select -
Adjustments to reconcile net income to net cash flow from operating activities:
Decrease in accounts receivableDepreciationIncrease in accounts receivableLoss on disposal of equipment	- Select -
Decrease in prepaid insuranceGain on disposal of equipmentIncrease in accounts receivableLoss on disposal of equipment	- Select -
Changes in current operating assets and liabilities:
Decrease in income taxes payableDepreciationIncrease in accounts receivableIncrease in inventory	- Select -
Decrease in accounts receivableDecrease in inventoryIncrease in inventoryIncrease in prepaid insurance	- Select -
Decrease in accounts receivableDecrease in prepaid insuranceIncrease in inventoryIncrease in prepaid insurance	- Select -
Decrease in accounts payableDecrease in income taxes payableDepreciationIncrease in accounts payable	- Select -
Decrease in accounts receivableDecrease in income taxes payableIncrease in income taxes payableIncrease in prepaid insurance	- Select -
Net cash flow from operating activities		$fill in the blank b4e56a02f011054_17

Question Content Area

b. Why is net cash flows from operating activities different than net income?

Cash flows from operating activities is based on

accrual basis cash basistax basis

of accounting, whereas net income is computed using

accrual basis cash basistax basis

of accounting.