Question

Which of the following is not a typical reason for differences between accounting profit and cash flow?

____

Depreciation expenses

Income taxes

Changing levels of accounts receivable

Accrual accounting practices

Answer 1

Income taxes is not a typical reason for differences between accounting profit and cash flow because income taxes are considered both at the same rate while calculating accounting profit and cash flows

depreciation expenses often are a source of difference between accounting profit and cash flow since depreciation expenses are not actually a cash flow , and hence it is added back while calculating the value of cash flow

changing levels of accounts receivable will lead to a difference in accounting profit and cash flow , since the accounting profit is calculated based on accrual accounting and adds the revenue that is earned even though cash may not be received for it but cash flows record actual value of cash received and not the accounts receivable value

Accrual accounting practices will lead to a difference in accounting profit and cash flow since accrual accounting realises revenues when they are earned and not when the cash is received for them, which is the opposite cash flows, which actually record only cash receipts and payments