Q23Q. - Intermediate Accounting (Kieso)

Question

Net income for the year for Carrie, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. What might account for the difference?

Step-by-Step Solution

Answer

Net cash from the operation is higher than the net income of the business entity because of higher non-cash expenses reported in the income statement.

Definition of Accrual Accounting

The Accrual accounting concept can be defined as the accounting method of reporting all the business transactions of financial nature as they occur without considering the flow of cash.

Different in net income and net cash from operating activities

The difference between the net cash provided from operating activities and net income is non-cash expenses such as depreciation and amortization. Such expenses will reduce the net income but not reduce the cash from operating activities because it does not include cash outflow.