Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $128,100. Depreciation recorded on store equipment for the year amounted to $21,100. 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	$51,500		$46,870
Accounts receivable (net)	36,930		34,640
Merchandise inventory	50,420		52,730
Prepaid expenses	5,670		4,450
Accounts payable (merchandise creditors)	48,260		44,340
Wages payable	26,370		28,970

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:
	$
Adjustments to reconcile net income to net cash flow from operating activities:
Changes in current operating assets and liabilities:
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

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer 3 Statement of Cash Flows (partial) 1,28,100 21,100 5 Cash flow from operating activities 6 Net Income 7 Adjustments to reconcile net income to net cash flow from operating activities 8 Depreciation Expense 9 Change in current operating assets and liabilities 10 Increase in account receivable (36930-34640) 11 Decrease in inventory (52730-50420) 12 Increase in prepaid expenses (5670-4450) 13 Increase in account payable (48260-44340) 14 Decrease in wages payable (28970-26370) 15 Net Cash Flow From Operating activities -2,290 2,310 -1,220 3,920 -2,600 1,49,320 17 Part 2) Cash Flow From operating activities differ from net income because it does not use the accrual system of accounting For example revenues are recorded on the income statement when sales are made irrespective of cash has been 18 received or not.