Exercise $3-7$A $($Algo$)$ Effect of purchase returns and allowances and freight costs on the financial

statements: Perpetual system LO $3-2,3-3,3-4$

$[$The following information applies to the questions displayed below.$]$

The beginning account balances for Terry's Auto Shop as of January $1,$ Year $2,$ follow:

The following events affected the company during the Year $2$ accounting period:

Purchased merchandise on account that cost $$4,240.$

The goods in Event $1$ were purchased FOB shipping point with freight cost of $$295$ cash.

Returned $$455$ of damaged merchandise for credit on account.

Agreed to keep other damaged merchandise for which the company received a $$230$ allowance.

Sold merchandise that cost $$2,660$ for $$4,800$ cash.

Delivered merchandise to customers in Event $5$ under terms FOB destination with freight costs amounting to $$110$ cash.

Paid $$2,800$ on the merchandise purchased in Event $1.$

C$.$ Why does a difference exist between net income and net cash flow from operating activities?