Why Is There a Difference Between Earnings and Cash Flows

question 20

Multiple Choice

Why is there a difference between earnings and cash flows?

• A)Because of accruals and non-cash items.
• B)Because of the difference in accounting methods.
• C)Because cash flow statements and income statements follow different GAAP.
• D)Because expenses are not accounted for the same way as revenues.

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Definitions:

Job Order Cost System

An accounting system that accumulates manufacturing costs separately for each job or order, tracking direct labor, direct materials, and applied overhead.

Oil Refinery

An industrial plant specialized in the process of converting crude oil into various products and fuels such as gasoline, diesel, and jet fuel through various chemical processes.

Hospital

A healthcare institution providing patient treatment with specialized medical and nursing staff and medical equipment.

Over/Underapplied Overhead

The difference between the overhead costs allocated and the actual overhead costs incurred.