Question

E3 question-groupIEZAS PuuXlYyOcabiam cuve Saved The beginning account balances for Terry's Auto Shop as of January 1 Year 2 follow 6 Ant Tiles Cash eventory Con Stock Metained ning beginning Balances $6,010 3,190 7.490 1,710 Pantoa The following events affected the company during the Year 2 accounting period 3 1. Purchased merchandise on account that cost $4100 2. The goods in Event I were purchased FOB shipping point with freight cost of $270 cash 3. Returned $430 of damaged merchandise for credit on account 4. Agreed to keep other damaged merchandise for which the company received a 5285 allowance 5. Sold merchandise that cost $2.680 for 54.810 cash 6. Delivered merchandise to customers in Events under terms FOB destination with freight costs amounting to 5190 cash 7. Paid $2,980 on the merchandise purchased in Event c. Why does a difference exist between net income and net cash flow from operating activities! Multiple Choice The difference between come and how to secure for when egnet come O how to down because these

Answer 1

Answer:The difference between net income and net cash flow from operating activities exists because the shop is not selling all the inventory that it purchased during the period.

The difference between net income of $1,940 and cash flow from operating activities of $1,370 is because not all of the inventory that has been sold was paid for. The amount of inventory that was sold is $2,680, but the amount of accounts payable paid for inventory was only $2,110. This accounts for the $570 difference.

Terry's Auto Shop Journal Enteries Event Particulars 1 Inventory Accounts Payable (Inventory on account) Debit in $ Credit in $ 4100 4100 Trial Balance For the period ending Year 2 Particulars Debit in $ Credit in $ 7380 Cash 4165 405 2. 270 7490 Inventory Cash (Freight paid) 270 1710 Inventory Accounts Payable Common Stock Retained Earnings Sales Cost of goods sold Delivery cost Totals 4810 2680 190 3 430 Accounts Payable Inventory (Goods returned) 430 14415 14415 0 4 Accounts Payable 285 Inventory (Allowance for damaged goods) 285 4810 Statement of Income For the period ending Year 2 Sales Less: Cost of goods sold Delivery cost Net Income 2680 5 4810 190 2870 Cash Sales (Sales) 4810 1940 Cost of goods sold 2680 Inventory (To record cost of goods sold) 2680 1940 Statement of Cash flow For the period ending Year 2 Cashflow from Operating actiivty Net Income Adjustments: Increase in Inventory Increase in Accounts Payable Cash generated from Operating Activity 6 190 -975 Delivery cost Cash (Freight paid) 190 405 -570 1370 7 2980 Accounts Payable Cash (Creditors paid) 2980