The income statement disclosed the following items for year:

The income statement disclosed the following items for year:

Depreciation expense$44,600Gain on disposal of equipment26,040Net income304,400

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

Increase

(Decrease)Accounts receivable$6,950Inventory(3,960) Prepaid insurance(1,480)Accounts payable(4,710)Income taxes payable1,480Dividends payable1,040

a. Prepare the Cash Flows from Operating Activities section of the , using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.

 Statement of Cash Flows (partial)For the year ended xxxCash flows from operating activities:Net income 

$Adjustments to reconcile net income to net cash flow from operating activities:Depreciation 

Gain on disposal of equipment 

Changes in current operating assets and liabilities:Increase in accounts receivable 

Decrease in inventory 

Decrease in prepaid insurance 

Decrease in accounts payable 

Increase in income taxes payable 

Net cash flow from operating activities$

b. Why is net cash flows from operating activities different than net income?

Cash flows from operating activities is based on cash basis 

 of accounting, whereas net income is computed using accrual basis 

 of accounting.