EX 16-5 Cash flows from operating activities—indirect method
The net income reported on the income statement for the current year was $720,000. Depreciation recorded on store equipment for the year amounted to $32,700. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:
| End of Year | Beginning of Year | |
| Cash | $78,450 | $72,300 |
| Accounts receivable (net) | 56,250 | 53,400 |
| Merchandise inventory | 76,800 | 81,330 |
| Prepaid expenses | 9,000 | 6,900 |
| Accounts payable (merchandise creditors) | 73,500 | 68,400 |
| Wages payable | 40,200 | 44,700 |
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
b. Briefly explain why cash flows from operating activities is different than net income.
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