The net income reported on the income statement for the current year was $410,40

Question

The net income reported on the income statement for the current year was $410,400. Depreciation recorded on store equipment for the year amounted to $17,470. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

Required:

End of Year Beginning of Year Cash $39,800 $37,960 Accounts receivable (net) 31,820 27,630 Merchandise inventory 39,230 43,060 Prepaid expenses 3,750 4,820 Accounts payable (merchandise creditors) 39,770 35,040 Wages payable 20,280 24,950

Explanation / Answer

A) Cash from operating activitieis net income for the year 410,400 Adjustments to reconcile net income to cash from operating activities depreciation expense 17,470 increase in account receivable -4190 Decrease in merchandise inventory 3830 decrease in prepaid expense 1070 increase in accounts payable 4730 decrease in wages payable -4670 net cash flow from operating activities 428,640 B) Net income is the first line item in cash flow statement, the net income is difference of revenue earned less expense incurred thus whether the revenues are recognised when earned and expense when incurred irrespective of when cash is received or earned however under cash flow statement non cash items like depreciation expense, amortization expense are added back to cash flow statement as these are non cash items hence the difference between the two

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