In order to derive a cash flow statement,the owner must add back the _____ to the income statement.
A)depreciation expense
B)increase in accounts receivable
C)increases in inventory
D)decrease in accounts payable

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense that reduces net income on the income statement, therefore it must be added back to get an accurate picture of the actual cash flow of the business. Increases in accounts receivable and inventory as well as a decrease in accounts payable all have an effect on cash flow, but they are not directly tied to the income statement.

In Order to Derive a Cash Flow Statement,the Owner Must