A company reported net income of $150,000 for the current year, but its cash balance decreased by $40,000. Which financial statement should management refer to for an explanation of this situation?
A)Balance Sheet
B)Income Statement
C)Statement of retained Earnings
D)Statement of Cash Flows

Question

Quizplus · Accepted Answer

The statement of cash flows explains changes in a company's cash balance over a period of time. It identifies whether the company has generated or used cash from its operating, investing, and financing activities. The net income reported on the income statement does not directly reflect changes in cash balance, so the statement of cash flows is the best option for understanding why the company's cash balance decreased despite reporting net income.

A Company Reported Net Income of $150,000 for the Current