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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 increases in current liabilities and decreases in current assets added back to net income?

To determine

Explain the reason for the increase in current liabilities and decrease in current assets are added back to 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 increase in current liabilities and the decrease in current assets are added back to the net income...

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