1. Cash Flows from Operating ActivitiesA method of reporting the cash flows from operating activities as the net income from operations adjusted for all deferrals of past cash receipts and payments and all accruals of expected future cash receipts and payments.Indirect Method

   The net income reported on the income statement for the current year was $124,300. Depreciation recorded on store equipment for the year amounted to $20,500. 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	$50,590		$46,040
   Accounts receivable (net)	36,270		34,020
   Inventories	49,530		51,800
   Prepaid expenses	5,560		4,370
   Accounts payable (merchandise creditors)	47,400		43,550
   Wages payable	25,900		28,450

   a. Prepare the Cash Flows from Operating Activities section of the A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.statement of cash flows, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

   Statement of Cash Flows (partial)
   Cash flows from operating activities:
   Decrease in prepaid expenses Depreciation Increase in inventories Net income	$
   Adjustments to reconcile net income to net cash flow from operating activities:
   Decrease in accounts payable Decrease in accounts receivable Depreciation Increase in wages payable
   Changes in current operating assets and liabilities:
   Depreciation Increase in accounts receivable Increase in inventories Increase in wages payable
   Decrease in accounts receivable Decrease in inventories Decrease in prepaid expenses Increase in inventories
   Decrease in accounts receivable Increase in inventories Increase in prepaid expenses Increase in wages payable
   Decrease in accounts payable Depreciation Increase in accounts payable Increase in wages payable
   Decrease in accounts receivable Decrease in prepaid expenses Decrease in wages payable Increase in wages payable
   Net cash flow from operating activities		$

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   b. Cash flows from operating activities differs from net income because it does not use the

   • accrual basis
   • cash basis
   of accounting. For example revenues are recorded on the income statement when
   • they are earned
   • cash is received
   .