Textbook Problem

Cash flows from operating activities—indirect method

The income statement disclosed the following items for the year:

Depreciation expense	$ 57,600
Gain on disposal of equipment	33,600
Net income	508,000

The changes in the current asset and liability accounts for the year are as follows:

Increase (Decrease)
Accounts receivable	$ 8,960
Inventory	(5,120)
Prepaid insurance	(1,920)
Accounts payable	(6,080)
Income taxes payable	1,410
Dividends payable	2,200

• A. Prepare the Clash flows from Operating Activities section of the statement of cash flows, using the indirect method.
• B. Briefly explain why net cash flow from operating activities is different than net income.