Suppose your company sells services for $325 cash this month. Your company also pays $100 in wages, which includes $15 that was payable at the end of the previous month and $85 for wages of this month.

Required:

1. Show the journal entries to record these transactions.

2. Calculate the amount that should be reported as net cash flow from operating activities.

3. Calculate the amount that should be reported as net income.

4. Show how the indirect method would convert net income (requirement 3) to net cash flow from operating activities (requirement 2).

5. What general rule about converting net income to operating cash flows is revealed by your answer to requirement 4?