When Preparing a Reconciliation of Net Income to Cash from Operations,an

question 23

Multiple Choice

When preparing a reconciliation of net income to cash from operations,an increase in the ending inventory over the beginning inventory will result in an adjustment to reported net income because

• A) cash is increased because inventory is a current asset.
• B) inventory is an expense deducted in computing net earnings,but is not a use of cash.
• C) the net increase in inventory is part of the difference between cost of goods sold and cash paid to suppliers.
• D) all changes in noncash accounts must be disclosed.

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Definitions:

Cash Dividend

A payment made by a company to its shareholders, usually as a distribution of profits.

Operating Activities

Transactions and events that directly affect the financial position of a company, primarily related to its core business operations.

Comparative Balance

A financial statement that presents balances of accounts or financial metrics at different points in time for comparison.

Direct Method

A method of preparing the cash flow statement where actual cash flow information from operating activities is directly listed.