COOK STOW ME HOW Calculator Cash Flows from Operating Activities-Indirect Method The income statement disclosed the following items for the year: Depreciation expense $35,800 Gain on disposal of equipment 20,900 Net income 307,000 The changes in the current asset and liability accounts for the year are as follows: Increase (Decrease) Accounts receivable $5,580 Inventory (3,180) Prepaid insurance (1,190) Accounts payable (3,780) Income taxes payable 1,190 Dividends payable 840 a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the Indirect method. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments. Statement of Cash Flows (partial) For the year ended Dec. 31, Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash flow from operating activities: Depreciation expense 9307.000 35.800 20,900 Gain on disposal of equipment Changes in current operating assets and liabilities: Increase in accounts receivable 5580 Decrease in inventory Decrease in prepaid insurance Increase in accounts payable Increase in income taxes payable Net cash flow from operating activities accrual basis $322.720 b. Why is net cash flows from operating activities cash basis tax basis t Income? Cash flows from operating activities is based on of accounting, whereas net income is computed using of accounting