Question

Cash Flows from Operating Activities-Indirect Method Operating Activities Indirect Method The net income reported on the income statement for the current year was $146,300. Depreciation recorded on store equipment for the year amounted to $24,100. 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 $56,760 $52,220 Accounts receivable (net) 40,700 38,590 Merchandise inventory 55,570 58,750 6,240 4,960 Prepaid expenses Accounts payable (merchandise creditors) Wages payable 53,180 29,060 49,400 32,270 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: perating activities: Adjustments to reconcile net income to net cash flow from operating activities: 0 Changes in current operating assets and liabilities: RE Net cash flow from operating activities

Answer 1

Solution Required a. Cash flows from Operation Activities Section $146,300 $24,100 Statement of Cash Flows (Partial) Cash flows from operating activites: Net income Adjustments to reconcile net income to net cash flow from operating activities: Depreciation Changes in current operating assets and liabilities: Increase in accounts receivable ($ 40,700 - $38,590) Decrease in merchandise inventory ($58,750 - $55,570) Increase in prepaid expenses ($6,240 - $4,960) Increase in accounts payable ($53,180 - $49,400) Decrease in wages payable ($32,270 - $29,060) Net cash flow from operating activities ($2,110) $3,180 ($1,280) $3,780 ($3,210) L $170,760 Required 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.