Which of the following independent transactions would cause net income to be more than cash from operating activities?
A) A decrease in the accounts receivable account
B) An increase in the merchandise inventory account
C) An increase in the accounts payable account
D) An increase in the accrued wages account

Question

Quizplus · Accepted Answer

An increase in the merchandise inventory account would cause net income to be more than cash from operating activities because it represents a purchase of more inventory than was sold during the period, leading to a higher cost of goods sold and lower net income. However, cash would not be affected until the inventory is sold and payment is received. The other options (decrease in accounts receivable, increase in accounts payable, increase in accrued wages) would all lead to cash inflows and therefore would not cause net income to be more than cash from operating activities.

Which of the Following Independent Transactions Would Cause Net Income