The income statement for Dunn Products Inc. is presented below.

The following balance sheet changes occurred during the year:
€¢ Accounts receivable decreased by $85,150
€¢ Inventory decreased by $138,620
€¢ Prepaid expenses increased by $112,400
€¢ Accounts payable decreased by $67,225
€¢ Salaries payable increased by $18,300

Required:
1. Prepare the net cash flows from operating activities using the indirect method.
2. What are the causes of the major differences between net income and net cash flow from operating activities?

Dunn Products Inc. Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold Gross margin Other expenses: $3,584,600 2,557 500 $1,027,100 Salaries expense Administrative expense Depreciation expense Bad debt expense Income taxes expense $455,100 247,000 214,500 37,000 28,200 981,800 45,300 Net income