In order to derive a cash flow statement, starting with the income statement the owner must add back in _____.
A) depreciation expense
B) increase in accounts receivable
C) increases in inventory
D) decrease in accounts payable

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense and is therefore added back in to derive the cash flow statement. Increases in accounts receivable and inventory indicate that cash was not received or paid out and are therefore subtracted from operating cash flow. Decrease in accounts payable indicates that cash was paid out and is added back in to derive the cash flow statement.

In Order to Derive a Cash Flow Statement, Starting with the Income