Operating Activities Section—Indirect Method The following account balances for the noncash current assets and current liabilities of Suffolk Company are available:

Net income for 2008 is $40,000. Depreciation expense is $20,000. Assume that all sales and all purchases are on account.
Required 1. Prepare the Operating Activities section of the statement of cash flows using the indirect method.
2. Provide a brief explanation as to why cash flow from operating activities is more or less than the net income of the period.

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December 31 2008 2007 Accounts receivable $43,000 $35,000 Inventory 30,000 40,000 Prepaid rent 17,000 15,000 Totals $90,000 $90,000 Accounts payable $26,000 $19,000 Income taxes payable 6,000 10,000 Interest payable 15,000 12,000 Totals $47,000 $41,000