To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by
A) re-recording all income statement transactions that directly affect cash in a separate cash flow journal.
B) estimating the percentage of income statement transactions that were originally reported on a cash basis and projecting this amount to the entire array of income statement transactions.
C) eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.
D) eliminating all transactions that have no current or future effect on cash, such as depreciation, from the net income computation.

Question

Quizplus · Accepted Answer

To arrive at net cash provided by operating activities, non-cash transactions must be eliminated, which are the transactions that did not result in a corresponding increase or decrease in cash. This can be done by adjusting the net income for items such as depreciation, amortization, and changes in working capital to arrive at cash provided by operating activities. Option A suggests a separate cash flow journal, which is not necessary. Option B proposes an estimate, which can lead to inaccuracies. Option D suggests eliminating all non-cash transactions, which could leave out important information.

To Arrive at Net Cash Provided by Operating Activities, It