explain why a difference does or does not exist between net income and net cash flow 650188

Effect of purchase returns and allowances and freight costs on the journal, ledger, and financial statements: perpetual system

The trial balance for The Photo Hut as of January 1, 2011, was as follows:

The following events affected the company during the 2011 accounting period:

1. Purchased merchandise on account that cost $4,100.

2. Purchased goods in Event 1. FOB shipping point with freight cost of $300 cash.

3. Returned $500 of damaged merchandise for credit on account.

4. Agreed to keep other damaged merchandise for which the company received a $250 allowance.

5. Sold merchandise that cost $2,750 for $4,750 cash.

6. Delivered merchandise to customers under terms FOB destination with freight costs amounting to $200 cash.

7. Paid $3,000 on the merchandise purchased in Event 1.

Required

a. Organize appropriate ledger accounts under an accounting equation. Record the beginning balances and the transaction data in the accounts.

b. Prepare an income statement and statement of cash flows for 2011.

c. Explain why a difference does or does not exist between net income and net cash flow from operating activities.