The net income reported on the income statement for the current year was $128,600. Depreciation recorded on store equipment for the year amounted to $21,200. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

End of YearBeginning of Year

Cash$49,640$45,170

Accounts receivable (net)35,59033,380

Merchandise inventory48,60050,820

Prepaid expenses5,4604,290

Accounts payable (merchandise creditors)46,51042,730

Wages payable25,42027,920

a.Prepare the Cash Flows from Operating Activities section of thestatement 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)

Cash flows from operating activities:Net income

$Adjustments to reconcile net income to net cash flow from operating activities:Depreciation

Changes in current operating assets and liabilities:Increase in accounts receivable

Increase in inventories

Increase in prepaid expenses

Decrease in accounts payable

Decrease in wages payable

Net cash flow from operating activities$

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

of accounting. For example revenues are recorded on the income statement whencash is received

.