Asked by Katie Flynn on May 19, 2024
Verified
Which of the following statements is correct?
A) Assets on the balance sheet include retained earnings.
B) Retained earnings includes common stock.
C) The balance sheet equation states that assets equal liabilities.
D) A corporation's net income does not necessarily equal its net cash flow from operations.
Balance Sheet Equation
An accounting formula representing the relationship between assets, liabilities, and owner's equity (Assets = Liabilities + Owner's Equity).
Retained Earnings
The portion of net income not distributed as dividends to shareholders, but retained by the company to reinvest in its business or to pay debt.
Net Income
The profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, a key indicator of financial health.
- Determine the aim of the balance sheet and gain understanding regarding the contributions of financial statements.
- Know the balance sheet equation and how it represents the financial position of a company.
Verified Answer
JV
Jacqueline VerdugoMay 25, 2024
Final Answer :
D
Explanation :
Net income and net cash flow from operations are two different things. Net income is the amount of revenue that exceeds the expenses on a company's income statement, while net cash flow from operations is the amount of cash generated or used by a company's operations. It's possible for a company to have positive net income but negative net cash flow from operations if, for example, it has a lot of non-cash expenses or if it is using cash to purchase inventory or make other investments in the business.
Learning Objectives
- Determine the aim of the balance sheet and gain understanding regarding the contributions of financial statements.
- Know the balance sheet equation and how it represents the financial position of a company.