The net income reported on the income statement for the current year was $93,700. Depreciation recorded on store equipment for the year amounted to $31,200. 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 $24,100 $19,700 Accounts receivable (net) 65,000 56,000 Inventories 47,200 50,000 Prepaid expenses 3,250 8,000 Accounts payable (merchandise creditors) 23,400 17,200 Wages payable 5,300 6,400 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: Net income $fill in the blank ac52ec06afb9fa6_2 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation fill in the blank ac52ec06afb9fa6_4 Changes in current operating assets and liabilities: Increase in accounts receivable fill in the blank ac52ec06afb9fa6_6 Decrease in inventories fill in the blank ac52ec06afb9fa6_8 Decrease in prepaid expenses fill in the blank ac52ec06afb9fa6_10 Increase in accounts payable fill in the blank ac52ec06afb9fa6_12 Decrease in wages payable fill in the blank ac52ec06afb9fa6_14 Net cash flow from operating activities $fill in the blank ac52ec06afb9fa6_15 b. Cash flows from operating activities differs from net income because it does not use the accrual basis of accounting. For example revenues are recorded on the income statement when they are earned .

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cash Flows from Operating Activities—Indirect Method

The net income reported on the income statement for the current year was $93,700. Depreciation recorded on store equipment for the year amounted to $31,200. 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	$24,100		$19,700
Accounts receivable (net)	65,000		56,000
Inventories	47,200		50,000
Prepaid expenses	3,250		8,000
Accounts payable (merchandise creditors)	23,400		17,200
Wages payable	5,300		6,400

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:
Net income	$fill in the blank ac52ec06afb9fa6_2
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation	fill in the blank ac52ec06afb9fa6_4
Changes in current operating assets and liabilities:
Increase in accounts receivable	fill in the blank ac52ec06afb9fa6_6
Decrease in inventories	fill in the blank ac52ec06afb9fa6_8
Decrease in prepaid expenses	fill in the blank ac52ec06afb9fa6_10
Increase in accounts payable	fill in the blank ac52ec06afb9fa6_12
Decrease in wages payable	fill in the blank ac52ec06afb9fa6_14
Net cash flow from operating activities		$fill in the blank ac52ec06afb9fa6_15

b. Cash flows from operating activities differs from net income because it does not use the accrual basis of accounting. For example revenues are recorded on the income statement when they are earned .

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