Chapter 13, Problem 6E

Cash flows from operating activities—indirect method

The net income reported on the income statement for the current year was $185,000. Deprecia­tion recorded on equipment and a building amounted to $96,000 for the year. 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	$ 75,900	$ 86,150
Accounts receivable (net)	84,550	90,000
Inventories	186,200	175,000
Prepaid expenses	3,600	4,500
Accounts payable (merchandise creditors)	91,500	110,000
Salaries payable	7,200	4,000

• A. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
• B. If the direct method had been used, would the net cash flow from operating activities have been the same? Explain.