Which of the following statements is correct about cash flows?
A) Net income is a use of cash.
B) Net loss is a source of cash.
C) A decrease in noncash assets is a source of cash.
D) An increase in noncash assets is a source of cash.

Question

Quizplus · Accepted Answer

A decrease in noncash assets, such as accounts receivable or inventory, represents a conversion of those assets into cash, thus providing a source of cash. Net income is not a use of cash, as it represents the profit earned by the firm after all expenses have been paid. Net loss is not a source of cash, as it represents a negative amount of profit. An increase in noncash assets represents a use of cash, as the firm must invest cash in order to acquire more noncash assets.

Which of the Following Statements Is Correct About Cash Flows