Cash Flows from Operating ActivitiesIndirect Method

The net income reported on the income statement for the current year was $144,900. Depreciation recorded on store equipment for the year amounted to $23,900. 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	$56,510		$51,420
Accounts receivable (net)	40,520		38,000
Inventories	55,320		57,850
Prepaid expenses	6,220		4,880
Accounts payable (merchandise creditors)	52,950		48,640
Wages payable	28,930		31,780

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 outflows, cash payments, decreases in cash, or any negative adjustments.

Cash flows from operating activities:
Decrease in prepaid expensesDepreciationIncrease in inventoriesNet incomeNet income	$Net income
Adjustments to reconcile net income to net cash flow from operating activities:
Decrease in accounts payableDecrease in accounts receivableDepreciationIncrease in wages payableDepreciation	Depreciation
Changes in current operating assets and liabilities:
DepreciationIncrease in accounts receivableIncrease in inventoriesIncrease in wages payableIncrease in accounts receivable	Increase in accounts receivable
Decrease in accounts receivableDecrease in inventoriesDecrease in prepaid expensesIncrease in inventoriesDecrease in inventories	Decrease in inventories
Decrease in accounts receivableIncrease in inventoriesIncrease in prepaid expensesIncrease in wages payableIncrease in prepaid expenses	Increase in prepaid expenses
Decrease in accounts payableDepreciationIncrease in accounts payableIncrease in wages payableIncrease in accounts payable	Increase in accounts payable
Decrease in accounts receivableDecrease in prepaid expensesDecrease in wages payableIncrease in wages payableDecrease in wages payable	Decrease in wages payable
Net cash flow from operating activities		$fill in the blank 7c31aa01ef8afe4_15

Question Content Area

b. Cash flows from operating activities differs from net income because it does not use the

accrual basis/ cash basis

of accounting. For example revenues are recorded on the income statement when

they are earned/ cash is received

.