Cash Flows from Operating ActivitiesIndirect Method

The net income reported on the income statement for the current year was $137,400. Depreciation recorded on store equipment for the year amounted to $22,700. 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	$56,200		$51,700
Accounts receivable (net)	40,300		38,210
Inventories	55,020		58,160
Prepaid expenses	6,180		4,910
Accounts payable (merchandise creditors)	52,660		48,910
Wages payable	28,770		31,950

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 blank Statement of Cash Flows (partial)

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 payable	- Select -
Changes in current operating assets and liabilities:
DepreciationIncrease in accounts receivableIncrease in inventoriesIncrease in wages payable	- Select -
Decrease in accounts receivableDecrease in inventoriesDecrease in prepaid expensesIncrease in inventories	- Select -
Decrease in accounts receivableIncrease in inventoriesIncrease in prepaid expensesIncrease in wages payable	- Select -
Decrease in accounts payableDepreciationIncrease in accounts payableIncrease in wages payable	- Select -
Decrease in accounts receivableDecrease in prepaid expensesDecrease in wages payableIncrease in wages payable	- Select -
Net cash flow from operating activities		$fill in the blank 5fb56b016045fba_15

Question Content Area

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

accrual basiscash basis

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

they are earnedcash is received

.