Asked by Michael Williams on May 10, 2024
Verified
When adjusting accrual earnings to obtain cash flows from operations,an increase in Accounts Payable is added to arrive at cash flow from operations.
Cash Flow From Operations
The portion of cash flow that results directly from a company's regular business operations, excluding financing or investing activities.
- Comprehend the impact of balance sheet account variations on cash flows and their incorporation into the cash flow statement.
- Acquire knowledge on the effect of depreciation on cash flow from operating activities and its accounting in cash flow statements.
Verified Answer
MF
Mirna Francis
May 13, 2024
Final Answer :
True
Explanation :
An increase in Accounts Payable is added to arrive at cash flow from operations when adjusting accrual earnings. This is because an increase in Accounts Payable represents an increase in the amount of cash that the company owes to its suppliers, which is a liability. This increase in the liability reduces the company's cash outflows in the current period, and therefore needs to be added back to the accrual earnings to arrive at the cash flow from operations.
Learning Objectives
- Comprehend the impact of balance sheet account variations on cash flows and their incorporation into the cash flow statement.
- Acquire knowledge on the effect of depreciation on cash flow from operating activities and its accounting in cash flow statements.
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