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:

Governmental Direction

Guidance or regulation provided by government bodies to influence or control certain activities, industries, or economic policies.

Roundabout Production

An economic concept that refers to more capital-intensive and indirect methods of production, which, although initially more time-consuming and costly, lead to greater efficiencies and outputs in the long run.

Capital Goods

Capital goods are physical assets that a business uses in the production process to manufacture products and services that consumers will later use.

Consumer Desire

The want for goods, services, or experiences that can provide satisfaction or utility to the consumer.