In order to determine cash flows from operations, the owner must add back the depreciation expense to the net profits and then
A) subtract any decrease in accounts payable.
B) add any increase in accounts receivable.
C) add any increase in inventory.
D) subtract any decrease in inventory.

Question

Quizplus · Accepted Answer

To determine cash flows from operations, adding back depreciation to net profits is correct because depreciation is a non-cash expense. Then, subtracting any decrease in accounts payable is necessary because a decrease in accounts payable means that cash has been used to reduce the amount owed to suppliers, which is an outflow of cash from operations.

In Order to Determine Cash Flows from Operations, the Owner