Net income for a particular period does not equal cash flow from operations because
A)most firms use the accrual basis of accounting to measure operating performance.
B)most firms typically recognize revenue at the time of sale, independent of when they receive the cash from the sale.
C)some firms receive cash before providing services and recognizing revenues.
D)some firms receive cash after they have provided goods and recognized revenues.
E)all of the above

Question

Quizplus · Accepted Answer

All of the options (A, B, C, D) can contribute to the difference between net income and cash flow from operations. The accrual basis of accounting used by most firms recognizes revenue and expenses when they are earned, regardless of when cash is exchanged. This can result in revenue being recognized in one period while the corresponding cash is received in a different period. Additionally, some firms may receive cash before providing services, resulting in increased cash but no corresponding revenue, while others may provide goods or services and recognize revenue before receiving payment, resulting in decreased cash but recognized revenue.

Net Income for a Particular Period Does Not Equal Cash