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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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Which of the following adjustments to net income is needed to obtain cash flows?

  1. a. Eliminate gains on sale of equipment.
  2. b. Deduct from net income all noncash expenses (e.g., depreciation and amortization).
  3. c. Deduct from net income any increases in current liabilities.
  4. d. Add to net income any increases in inventories.
  5. e. All of these.

To determine

Identify the needed adjustment to be made to the net income to obtain the cash flows.

Explanation

Cash Flow:

The amount which comes and goes out of a business as cash is referred as the cash flow in a business. The cash flows in any company are categorized in three parts named as cash flow from operating activities, cash flow from financing activities and cash flow from investing activities. The statement summarizing all the cash flows is referred as cash flow statement.

a.

The elimination of gains on the sale of equipment is an adjustment made in net income to obtain the cash flows. The income items that belong to the investing or financing section are eliminated while making an adjustment to the net income...

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