REPORTING NET CASH FLOW FROM OPERATING ACTIVITIES The income statement for Granville Manufacturing Company is presented below.

Granville Manufacturing Company Income Statement For the Year Ended December 31, 2009 Sales $4,200,000 Cost of goods sold 1,720,000 Gross margin $2,480,000 Operating expenses:

Salaries expense $720,000 Administrative expense 131,000 Bad debt expense 156,000 Depreciation expense 610,000 Other expenses 255,000 1,872,000 Net income $ 608,000 The following balance sheet changes occurred during the year:

. Accounts receivable increased by $900,000.

. Inventory decreased by $110,000.

. Prepaid expenses increased by $49,000.

. Accounts payable increased by $132,000.

. Salaries payable decreased by $58,000.

Required:

. Prepare the net cash flows from operating activities using the indirect method.

. What are the causes of the major differences between net income and net cash flow from operating activities.