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 $151,100. Depreciation recorded on store equipment for the year amounted to $24,900. 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 (accrual basis or cash basis) of accounting. For example revenues are recorded on the income statement when (they are earned/cash received) .

End of Year Beginning of Year Cash $58,630 $53,940 Accounts receivable (net) 42,040 39,860 Merchandise inventory 57,400 60,680 Prepaid expenses 6,450 5,120 Accounts payable (merchandise creditors) 54,940 51,030 Wages payable 30,020 33,330

Explanation / Answer

Statement of Cash Flows (partial) Cash flows from operating activities: Net income 151100 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 24900 Changes in current operating assets and liabilities: Decrease in inventories 3280 Increase in prepaid expenses -1330 Increase in accounts receivable -18770 Increase in accounts payable 3910 Decrease in wages payable -3310 Net cash flow from operating activities 159780 b Cash flows from operating activities differs from net income because it does not use the cash basis of accounting. For example revenues are recorded on the income statement when they are earned.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.