Which one of the following equations explains why successive balance sheets can be used to prepare a firm's cash flow statement?
A)Assets = Liabilities - Equity
B)Cash - Noncash assets = Liabilities - Equity
C)Δ Cash = Δ Liabilities - Δ Noncash assets + Δ Stockholders' equity
D)Δ Cash = Δ Liabilities + Δ Stockholders' equity

Question

Quizplus · Accepted Answer

The equation Δ Cash = Δ Liabilities - Δ Noncash assets + Δ Stockholders' equity relates the change in cash during an accounting period to the changes in liabilities, noncash assets, and stockholders' equity. By comparing the balance sheets of two periods, one can determine the changes in these variables and use them to calculate the change in cash. Therefore, this equation is crucial for using successive balance sheets to prepare a cash flow statement.

Which One of the Following Equations Explains Why Successive Balance