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The net income reported on the income statement for the current year was $73,600. Depreciation recorded on

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The net income reported on the income statement for the current year was $73,600. Depreciation recorded on store equipment for the year amounted to $27,400. 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 (used for) Operating Activities section of the statement of cash flows, using the indirect method.

b. Briefly explain why net cash flows from operating activities is different from net income.

Transcribed Image Text:

End of Year Beginning of Year Cash $23,500 $18,700 Accounts receivable (net) 56,000 48,000 Merchandise inventory 35,500 40,000 Prepaid expenses Accounts payable (merchandise creditors) 4,750 7,000 21,800 16,800 Wages payable 4,900 5,800

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Financial Accounting

Financial Accounting

ISBN: 9781337913102

16th Edition

Authors: Carl S. Warren, Christine Jonick, Jennifer Schneider

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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