Question

E12-9 Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Indirect Method) [LO 12-2, LO 12-5] New Vision Company completed its income statement and balance sheet and provided the following information: $66,000 Service Revenue Expenses: Salaries and Wages Depreciation Utilities Office Net Income Decrease in Accounts Receivable Paid cash for equipment Increase in Salaries and Wages Payable Decrease in Accounts Payable $ 42,000 7,300 6,000 1,700 57,000 $ 9,000 $12,000 5,000 9,000 4,250 Required: 1. Present the operating activities section of the statement of cash flows for New Vision Company using the indirect method. 2. Of the potential causes of differences between cash flow from operations and net income, which are the most important to financial analysts?
I especially need help with part 2, thank you.

Answer 1

Part 2

In my opinion, the cause (among the given options) of differences between cash flow from operations and net income shall only be:

Differential methods of preparing cash flows and income statement

This is because income statement is prepared following accrual basis of accounting and cash flow statement only considers those transactions which affect cash balance, this raises difference between cash flow from operations and net income.