Which of these causes a difference between the profit in the income statement and the net cash increase in the statement of cash flows?All of the options listed.Credit purchases not yet paid.Depreciation.Prepaid insurance.
Question
Which of these causes a difference between the profit in the income statement and the net cash increase in the statement of cash flows?All of the options listed.Credit purchases not yet paid.Depreciation.Prepaid insurance.
Solution
All of the options listed cause a difference between the profit in the income statement and the net cash increase in the statement of cash flows.
Here's why:
-
Credit purchases not yet paid: When a company makes purchases on credit, it records the expense in the income statement, reducing profit. However, because no cash has been paid out yet, there is no effect on the cash flow statement.
-
Depreciation: Depreciation is a non-cash expense that reduces profit in the income statement. However, because no cash is actually paid out for depreciation, it does not affect the cash flow statement.
-
Prepaid insurance: When a company pays for insurance in advance, it reduces cash but is recorded as a prepaid expense (an asset) rather than an expense in the income statement. Therefore, it reduces cash flow but does not reduce profit.
So, all of these options can cause a difference between the profit in the income statement and the net cash increase in the statement of cash flows.
Similar Questions
Which of the following statements best describes the reason Depreciation Expense is added to net income when preparing the statement of cash flows?Multiple ChoiceDepreciation expense originally reduced net income, but it actually represents a cash inflow for the company.Depreciation expense originally reduced net income, but the expense does not involve a cash payment (outflow).Depreciation expense originally reduced net income, but it actually represents a cash outflow for the company.Depreciation expense is not included in net income, therefore, its cash effect must be accounted for separately.
Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit are included in which section of the statement of cash flows?Group of answer choices
The Statement of cash flows helps management, investors, creditors and other interested parties evaluate the following about the entity (choose all that apply):Group of answer choicesCash investing and financing transactions for the periodExplains the difference between profit and net cash provided (used) by operating activitiesAbility to pay share dividends and meet obligationsAbility to generate future cash flows
In the statement of cash flows, net cash flows from operating activities plus net cash flows from investing activities plus net cash flows from financing activities for the period equal:Group of answer choicesthe cash balance at the beginning of the period.total net increase or decrease in cash held for the period.the cash balance at the end of the period.operating profit.
Which of the following could cause accrual-based profits to be higher than net cash flows from operating activities?Group of answer choicesDepreciation expense has been included in the accrual-based profit.Not all of the cash has been received for sales made in the accounting period.Some expenses for the period have not been paid.None of the options is true.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.