To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Deloch purchased the stereo systems for $140,000 and sold them for $250,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 2% of sales. During the year she paid $2,820 cash to replace a defective turner.

a). Prepare an income statement and a statement of cash flows for Deloch's first year of operation.

b). Explain the difference between net income and the amount of cash flow from operating activities.