Typewritten answers only, please, no handwritten answers. Thank you.

The beginning account balances for Terrys Auto Shop as of January 1, 2018, follows:

Account Titles	Beginning Balances
Cash	$	6,040
Inventory		3,180
Common Stock		7,430
Retained Earnings		1,790

The following events affected the company during the 2018 accounting period:

Purchased merchandise on account that cost $4,260.

The goods in Event 1 were purchased FOB shipping point with freight cost of $285 cash.

Returned $420 of damaged merchandise for credit on account.

Agreed to keep other damaged merchandise for which the company received an $265 allowance.

Sold merchandise that cost $2,600 for $4,840 cash.

Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $115 cash.

Paid $2,990 on the merchandise purchased in Event 1.

Why does a difference exists between net income and net cash flow from operating activities?

Multiple Choice-which is the correct answer?

The difference between net income and net cash flow from operating activities exists because the shop is not selling all the inventory that it purchased during the period.

The difference between net income and net cash flow from operating activities exists because operating expenses are not required be to accounted for when determining net income.

The difference between net income and net cash flow from operating activities exists because of maintaining the inventory records using the perpetual inventory system.

Typewritten answers only, please, no handwritten answers. Thank you.