Which of the Following Causes Net Income to Differ from Cash

question 119

Multiple Choice

Which of the following causes net income to differ from cash flow?

• A)Depreciation
• B)The purchase of inventory on credit
• C)The sale of merchandise on credit
• D)All of the above

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Definitions:

Variable Costing Approach

An accounting method that considers only variable costs as product costs and all fixed costs as period costs, affecting inventory valuation and profitability.

Absorption Cost Approach

A costing method that includes all manufacturing costs — direct materials, direct labor, and both variable and fixed manufacturing overhead — in the cost of a product.

Fixed Costs

Expenses that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Net Income

The company's net income following the deduction of all expenses and taxes from its total revenue.