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

C) Eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash is the correct method for arriving at net cash provided by operating activities. This involves adjusting the net income by adding back non-cash expenses (like depreciation) and accounting for changes in working capital items (like accounts receivable and payable) to reflect actual cash received or paid.

To Arrive at Net Cash Provided by Operating Activities, It