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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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In computing the period’s net operating cash flows, why are decreases in liabilities and increases in current assets deducted from net income?

To determine

Explain the reason for the decrease in current liabilities and increase in current assets are deducted from net income while calculating the operating cash flows of an accounting period.

Explanation

Operational Cash Flow:

The cash flow obtained from the operational and profit generating activities in a firm are termed as the operational cash flow. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

While calculating the operating cash flow in an accounting period, the decrease in current liabilities and increase in current assets are added back to the net income. Any decrease in current liabilities shows that the payments to creditors made in an accounting period was more than the expenses...

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