Which combination is the appropriate operation to perform to the following accounts to reconcile net profit with net cash flows from operating activities?
A)
$$\begin{array} { | l | l | l | }
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { add } & \text { subtract } & \text { subtract } \
\hline
\end{array}$$
B)
$$\begin{array} { | l | l | l | }
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { add } & \text { add } & \text { subtract } \
\hline
\end{array}$$
C)
$$\begin{array} { | l | l | l | }
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { subtract } & \text { subtract } & \text { add } \
\hline
\end{array}$$
D)
$$\begin{array} { | l | l | l | }
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { subtract } & \text { add } & \text { subtract } \
\hline
\end{array}$$

Question

Which combination is the appropriate operation to perform to the following accounts to reconcile net profit with net cash flows from operating activities?
A)
$$\begin{array} { | l | l | l | } 
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { add } & \text { subtract } & \text { subtract } \
\hline
\end{array}$$
B)
$$\begin{array} { | l | l | l | } 
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { add } & \text { add } & \text { subtract } \
\hline
\end{array}$$
C)
$$\begin{array} { | l | l | l | } 
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { subtract } & \text { subtract } & \text { add } \
\hline
\end{array}$$
D)
$$\begin{array} { | l | l | l | } 
\hline \text { Decrease in inventories } & \text { Decrease in deferred tax assets } & \text { Increase in accounts receivable } \
\hline \text { subtract } & \text { add } & \text { subtract } \
\hline
\end{array}$$

Quizplus · Accepted Answer

A decrease in inventories is added back because it means less cash was used to purchase inventory. A decrease in deferred tax assets is added back because it indicates a reduction in taxes deferred, which increases cash available. An increase in accounts receivable is subtracted because it represents sales that have not yet been collected in cash, reducing the cash flow.

Which Combination Is the Appropriate Operation to Perform to the Following