Smith and Company reported net income for the current year.Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?
A) Cash dividends were paid to stockholders during the year.
B) Depreciation expense was recorded for the year.
C) A bank loan was repaid during the year.
D) Equipment was purchased for cash during the year.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense that reduces net income but does not involve any cash outflow. Therefore, if depreciation is added back to net income in the operating section of the cash flow statement, cash from operating activities will be higher than net income. Choices A, C, and D all involve cash outflows, which would cause cash from operating activities to be lower than net income.

Smith and Company Reported Net Income for the Current Year