If a firm shows an accounting net income, then
A) it will not have a cash flow problem
B) it will not have a problem obtaining a bank loan
C) it will be able to repay all current liabilities on time
D) none of the above

Question

Quizplus · Accepted Answer

Showing an accounting net income does not necessarily guarantee that a firm will have enough cash to meet its obligations, obtain a bank loan, or repay current liabilities on time. Accounting net income is calculated by subtracting expenses from revenue, and does not take into account any non-cash items or timing differences between when revenue is recognized and when cash is actually received. Therefore, it is possible for a firm to generate accounting net income but still face cash flow problems.

If a Firm Shows an Accounting Net Income, Then