Question

Cash Flows from Operating Activities Indirect Method The net income reported on the income statement for the current year was $144,200. Depreciation recorded on store equipment for the year amounted to $23,800. 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 $58,830 $53,540 Accounts receivable (net) 42,180 39,570 Merchandise Inventory 57,590 60,230 Prepaid expenses 6,470 5,090 Accounts payable (merchandise creditors) 55,120 50,650 Wages payable 30,120 33,090 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:

Answer 1

Solution

Cash Flow Statement (partial)
A. Cash Flows from Operating Activity
Net Income	$        144,200.00
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation expense	$           23,800.00
Changes in current operating assets and liabilities:
Increase in Accounts receivables	$           (2,610.00)
Decrease in Inventory	$             2,640.00
Increase in prepaid expense	$           (1,380.00)
Increase in Accounts payable	$             4,470.00
Decrease in wages payable	$           (2,970.00)
Net cash flow from Operating activities		$        168,150.00

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Cash flow from Operating activities differ from net income because it does not use the accrual method of accounting. For example revenues are recorded on the income statement when the are earned.