Which of the following is not a reason why cash flow may not equal net income?
A) Amortization is added in when calculating net income.
B) Changes in inventory will change cash flows but not income.
C) Capital expenditures are not recorded on the income statement.
D) Depreciation is deducted when calculating net income.

Question

Quizplus · Accepted Answer

Amortization is a non-cash expense that is added back in when calculating cash flow, so it would not affect the equality of cash flow and net income. B, C, and D are all valid reasons why cash flow may not equal net income. Changes in inventory affect cash flows through purchases and sales, but do not necessarily affect net income. Capital expenditures are not expensed on the income statement and therefore do not reduce net income, but they do affect cash flow. Depreciation is a non-cash expense that is deducted when calculating net income, but it is added back in when calculating cash flow, so it would not affect the equality of cash flow and net income.

Which of the Following Is Not a Reason Why Cash