To avoid understating the amount of cash flow from operations, the accountant
A)subtracts the loss from net income.
B)adds back the loss to retained earnings.
C)adds back the loss to net income.
D)subtracts the loss from retained earnings.
E)none of the above

Question

Quizplus · Accepted Answer

To avoid understating the amount of cash flow from operations, the accountant adds back the loss to net income. This is because the loss is a non-cash expense and does not represent an outflow of cash from the company's operations. By adding it back to net income, the accountant is adjusting for the impact of the loss on the company's reported earnings and ensuring that the cash flow from operations accurately reflects the cash generated or used by the company's core business activities.

To Avoid Understating the Amount of Cash Flow from Operations