Why doesn't an income statement provide a measure of a firm's cash flows?
What will be an ideal response?
An income statement is not a measure of cash flows because it is calculated on an accrual basis rather than a cash basis.
In accrual basis accounting, profits are recorded when earned–whether or not the profits have been received in cash
–and expenses are recorded when they are incurred–even if money has not actually been paid out. In cash basis
accounting, profits are reported when cash is received and expenses are recorded when they are paid.
For a number of reasons, profits based on an accrual accounting system will differ from the firm's cash flows. These
reasons include the following: 1. Sales reported in an income statement include both cash sales and credit sales. 2.
Some inventory purchases are financed by credit, so inventory purchases do not exactly equal cash spent for inventory.
3. The depreciation expense shown in the income statement is a noncash expense.
You might also like to view...
Please review each pair of a question and a response scale presented below. Which pair needs to be revised to better match the question and the response scale (i.e., either the question or the response scale needs to be revised)?
a. Are you satisfied with the quality of the customer service you received? ___ Strongly disagree ___ Disagree ___ Neutral ___ Agree ___ Strongly agree b. While completing this job task, how often do you have to ask someone for assistance? ___ Never ___ Seldom ___ Sometimes ___ Often ___ Always c. Would you recommend this workshop to your colleagues? ___ Yes ___ No d. How confident are you in completing the report? ___ Not confident at all ___ Barely confident ___ Somewhat confident ___ Very confident
Which sentence expresses numbers correctly?
A) We will interview 4 applicants for the two administrative professional positions. B) We will interview 4 applicants for the 2 administrative professional positions. C) We will interview four applicants for the two administrative professional positions.
According to Banerjee, a socially responsible firm should offer:
a. Provisions for stakeholders legally to challenge corporate decisions and legal aid mechanisms to provide public funds to support such challenges b. Community rights to resources, including indigenous people’s rights over common property such as forests, fisheries and minerals c. Veto rights over developmental projects and against displacement d. All of the above
The four largest gold-producing countries in the world want to form a collective-bargaining unit to provide gold-producing nations with some control of gold prices. These nations will most likely model the unit after
A. EU. B. OPEC. C. NAFTA. D. ASEAN. E. GATT.