Cash Flows from Operating Activities—Indirect Method The net income reported on

Question

Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $146,100. Depreciation recorded on store equipment for the year amounted to $24,100. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

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.

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 .

End of Year Beginning of Year Cash $58,590 $53,320 Accounts receivable (net) 42,010 39,400 Merchandise inventory 57,360 59,990 Prepaid expenses 6,440 5,070 Accounts payable (merchandise creditors) 54,900 50,440 Wages payable 30,000 32,950

Explanation / Answer

a Cash flows from operating activities: Net income 146100 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 24100 Changes in current operating assets and liabilities: Increase in accounts receivable -2610 Decrease in merchandise inventory 2630 Increase in prepaid expenses -1370 Increase in accounts payable 4460 Decrease in wages payable -2950 Net cash flow from operating activities 170360 b Cash flows from operating activities differs from net income because it does not use theaccrual basis of accounting. For example revenues are recorded on the income statement when they are earned

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