The income statement disclosed the following items for the year:

Depreciation expense	$37,600
Gain on disposal of equipment	21,920
Net income	257,300

The changes in the current asset and liability accounts for the year are as follows:

	Increase (Decrease)
Accounts receivable	$5,850
Inventory	(3,330)
Prepaid insurance	(1,250)
Accounts payable	(3,970)
Income taxes payable	1,250
Dividends payable	880

Question Content Area

a. Prepare the Cash Flows from (used for) 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.

blank Statement of Cash Flows (partial)

Cash flows from (used for) operating activities:
Depreciation expenseGain on disposal of equipmentIncrease in income taxes payableIncrease in inventoriesNet income	$- Select -
Adjustments to reconcile net income to net cash flows from (used for) operating activities:
Decrease in accounts receivableDepreciation expenseIncrease in accounts receivableIncrease in income taxes payableLoss on disposal of equipment	- Select -
Decrease in prepaid insuranceGain on disposal of equipmentIncrease in accounts receivableIncrease in income taxes payableLoss on disposal of equipment	- Select -
Changes in current operating assets and liabilities:
Decrease in income taxes payableDepreciation expenseGain on disposal of equipmentIncrease in accounts receivableIncrease in inventory	- Select -
Decrease in accounts receivableDecrease in inventoryGain on disposal of equipmentIncrease in inventoryIncrease in prepaid insurance	- Select -
Decrease in accounts receivableDecrease in prepaid insuranceGain on disposal of equipmentIncrease in prepaid insuranceLoss on disposal of equipment	- Select -
Decrease in accounts payableDecrease in income taxes payableDepreciation expenseGain on disposal of equipmentIncrease in accounts payable	- Select -
Decrease in accounts receivableDecrease in income taxes payableGain on disposal of equipmentIncrease in income taxes payableIncrease in prepaid insurance	- Select -
Net cash flows from operating activities		$fill in the blank ada05f005074074_17

Question Content Area

b. Why is net cash flows from operating activities different than net income?

Cash flows from operating activities is based on

accrual basis cash basistax basis

of accounting, whereas net income is computed using

accrual basis cash basistax basis

of accounting.