Which of the Following Adjustments to Net Income Is NOT

question 4

Multiple Choice

Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities?

• A)Add increases in accounts payable
• B)Add back depreciation
• C)Add increases in accounts receivable
• D)Deduct increases in inventory

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Definitions:

Accounts Payable

Represents money owed by a company to its creditors or suppliers for goods and services received but not yet paid for.

Cost of Goods Sold

The direct costs tied to the production of goods sold by a company, including both raw materials and labor costs.

Collections

The process of receiving payments from customers or the amounts collected on outstanding accounts receivable.

Cash Receipts

The total amount of cash collected by a business over a period of time, including revenues and other forms of cash inflows.