Cash Flows from Operating ActivitiesIndirect Method

The net income reported on the income statement for the current year was $125,000. Depreciation recorded on store equipment for the year amounted to $20,600. 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	$50,130		$46,120
Accounts receivable (net)	35,940		34,080
Merchandise inventory	49,080		51,890
Prepaid expenses	5,510		4,380
Accounts payable (merchandise creditors)	46,970		43,630
Wages payable	25,670		28,500

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.

Statement of Cash Flows (partial)
Cash flows from operating activities:
Net income	$fill in the blank 8c02c701c01f066_2
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	fill in the blank 8c02c701c01f066_4
Changes in current operating assets and liabilities:
Increase in accounts receivable	fill in the blank 8c02c701c01f066_6
Decrease in merchandise inventory	fill in the blank 8c02c701c01f066_8
Increase in prepaid expenses	fill in the blank 8c02c701c01f066_10
Increase in accounts payable	fill in the blank 8c02c701c01f066_12
Decrease in wages payable	fill in the blank 8c02c701c01f066_14
Net cash flow from operating activities		$fill in the blank 8c02c701c01f066_15

b. Cash flows from operating activities differs from net income because it does not use the accrual basis of accounting. For example revenues are recorded on the income statement when they are earned .