In Arriving at Cash from Operating Activities, Adding a Decrease

question 201

Multiple Choice

In arriving at cash from operating activities, adding a decrease in Supplies to net income eliminates the effect of recording adjusts net income for transactions that:

• A) increased net income, but has not been paid in cash this period.
• B) decreased net income, but has not been paid in cash this period.
• C) decreased net income and decreased cash.
• D) flow this period increased net income and increased cash flow this perioD.
• Adding decreases in current assets eliminates the effects of some transactions that decreased net income but did not affect cash in the current perioD.
• For example, when Supplies are used, net income decreases but cash is not affecteD.
• To eliminate these noncash effects from our cash flow computations, we must add back decreases in Supplies and other current assets.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, typically expressed as a yearly rate.

Net New Equity

Refers to the amount of money raised by a company through the issuance of new shares, subtracting any repurchases of existing shares.

Earnings Before Interest And Taxes

This represents the company’s earnings before the deduction of interest and tax expenses.

Net New Borrowing

The difference between the total amount of new borrowing and the total amount of debt repaid over a specific period.