Chapter 5: Q23Q. (page 238)

Net income for the year for Carrie, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. What might account for the difference?

Short Answer

Expert verified

Net cash from the operation is higher than the net income of the business entitybecause of higher non-cash expenses reported in the income statement.

Step by step solution

Definition of Accrual Accounting

The Accrual accounting concept can be defined as the accounting method of reporting all the business transactions of financial nature as they occur without considering the flow of cash.

Different in net income and net cash from operating activities

The difference between the net cash provided from operating activities and net income is non-cash expenses such as depreciation and amortization. Such expenses will reduce the net income but not reduce the cash from operating activities because it does not include cash outflow.

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FONZARELLI CORPORATION
BALANCE SHEET (PARTIAL)
DECEMBER 31, 2018
Assets
Cash		\(100,000
Unclaimed payroll check		27,500
Debt investment (trading) (fair value \)30,000) at cost		37,000
Accounts receivables (less bad debt reserves)		75,000
Inventory—at lower-of-cost (determined by the next-in, first-out method) or net realizable value		240,000
Total current assets		479,500

Tangible assets
Land (less accumulated depreciation)		80,000
Building and equipment	\(800,000
Less: Accumulated depreciation	(250,000)	550,000
Net tangible assets		630,000

Long-term investment
Stock and bonds		100,000
Treasury stock		70,000
Total long-term investment		170,000

Other assets
Discount on bonds payable		19,400
Sinking funds		975,000
Total other assets		994,400
Total assets		\)2,273,900

Particular	Amount £
Non-Current Assets
Goodwill	436
Other tangible assets	78
Property, plant, and equipment	1,122.80
Investment in associates	20.6
Trade and other receivables	81.1
Deferred tax assets	82.9
Post-employment benefits surpluses	1.3
	1,822.7
Current assets
Inventories	590.8
Trade and other receivables	753
Income tax recoverable	49
Available for sale investment	1.2
Cash and Cash equivalents	445
	1,839
Assets held for sale	11.9
Total assets	3,673.6

Current liabilities
Bank overdraft	4.8
Bank and other loans	11.2
Obligations under finance leases	1
Trade and other payables	677.6
Income tax liabilities	15.2
Provisions	100.3
	810.1

Non-Current liabilities
Bank and other loans	687.3
Obligations under financial leases	3.6
Trade and other payables	27.1
Post-Employment benefits obligations	343.5
Deferred tax liabilities	25.3
Income tax liabilities	79.5
Provisions	19.2
	1,185.5
Total liabilities	1,995.6
Net assets	1,678
Capital reserve
Ordinary share capital	79.6
Share premium account	799.2
Own shares	(8.2)
Capital redemption reserve	921.8
Currency translation reserve	(93)
Available for sale reserve	(0.9)
Accumulated deficit	(161.9)
Shareholder’s equity	1,536.6
Minority interest	141.4
Total equity	1,678

Net income for the year for Carrie, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. What might account for the difference?

Short Answer

Step by step solution

Definition of Accrual Accounting

Different in net income and net cash from operating activities

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