Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $116,900. Depreciation recorded on store equipment for the year amounted to $19,300. 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	$45,240		$41,170
Accounts receivable (net)	32,440		30,420
Merchandise inventory	44,290		46,320
Prepaid expenses	4,980		3,910
Accounts payable (merchandise creditors)	42,390		38,950
Wages payable	23,160		25,440

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 out flows, cash payments, decreases in cash, or any negative adjustments.

Statement of Cash Flows (partial)
Cash flows from operating activities:
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
Decrease in merchandise inventory
Increase in prepaid expenses
Increase in accounts payable
Decrease in wages payable
Net cash flow from operating activities		$

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

Answer 1