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 $129,200. Depreciation recorded on store equipment for the year amounted to $21,300. 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 and for any adjustments, if required.

   

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 Selectaccrual basiscash basisCorrect 1 of Item 2 of accounting. For example revenues are recorded on the income statement when Selectthey are earnedcash is receivedCorrect 2 of Item 2.

End of Year Beginning of Year Cash $52,330 $48,140 Accounts receivable (net) 37,520 35,580 Merchandise inventory 51,230 54,160 Prepaid expenses 5,760 4,570 Accounts payable (merchandise creditors) 49,030 45,540 Wages payable 26,790 29,750

Explanation / Answer

Statement of Cash Flows (partial) Cash flows from operating activities: Net income 129200 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation 21300 Changes in current operating assets and liabilities: Increase in Accounts receivable -1940 Decrease in Merchandise inventory 2930 Increase in Prepaid expenses -1190 Increase in Accounts payable 3490 Decrease in Wages payable 2960 Net cash flow from operating activities 156750 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

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