Question

In: Accounting

An organization's cash flow will always be equivalent to its operating income​

An organization's cash flow will always be equivalent to its operating income​

Solutions

Expert Solution

False

An organizations cash flow is not the same as its operating income. Operating income records transactions of non cash nature too such as depreciation cost, amortization cost. Whereas cash flow of a company deals only with cash transactions.

A statement of cash flow generated by indirect method shows a reconciliation of cash from operation with the Operating income.

Moreover cash flow changes due to financing and investing activities. Financing activities include proceeds from loan, shares issue, payments of dividends, payments or retirements of debts etc. Investing activities include Purchase and sale of fixed assets or Investments.

Financing and investing activities affect cash balance but not operating profit.

A company may having huge profits may still have cash deficits that is why it is said that an organization's cash flow may not be equivalent to its operating income​. The difference between operating cash flow and operating income is due to accrual system of accounting. Practically speaking if a company follows cash accounting then cash from operation would be same as operating income.

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Discuss how operating cash flow could exceed operating income.
Discuss how operating cash flow could exceed operating income.
Explain the concept of equivalent annual cash flow. Given the following cash flows from operating three...
Explain the concept of equivalent annual cash flow. Given the following cash flows from operating three machines and a 6% cost of capital, which machine has the higher value using the equivalent annual annuity method. All three machines cost the same to purchase. Machine 0 1 2 3 4 NPV Annuity Factor EAA A +20 +6 +6 ? ? ? B +15 +4 +5 +6 ? ? ? C +10 +5 +6 +7 +8 ? ? ?
operating cash flow. find the operating cash flow for the year for robinson and sons if...
operating cash flow. find the operating cash flow for the year for robinson and sons if it had sales of $81,200,000,,, cost of goods of $35,500,000, sales and administrative costs of $6,200,000, depreciation expense of $7,000,000, and a tax rate 0f 30%. the operating cash flow is ....... (round to the nearest dollar)
Which one of the following affects net income but not the operating cash flow?
Which one of the following affects net income but not the operating cash flow? 1)    taxes 2)    interest expense 3)    dividends 4)    cost of goods sold
Operating cash flow.??Find the operating cash flow for the year for Harper? Brothers, Inc. if it...
Operating cash flow.??Find the operating cash flow for the year for Harper? Brothers, Inc. if it had sales revenue of $308,600,000?, cost of goods sold of $135,600,000?, sales and administrative costs of $39,300,000?, depreciation expense of $65,700,000?, and a tax rate of 40%.
To produce a cash flow income statement, the direct method calculates operating cash flows by: a.adjusting...
To produce a cash flow income statement, the direct method calculates operating cash flows by: a.adjusting net income for noncash items. b.adjusting each line of the income statement. c.adjusting the income statement for changes only in current liabilities. d.adjusting net income for changes in all the current assets. Which of the following is an example of a cash equivalent? a.A patent b.A long-term investment c.A money market fund d.A prepaid expense Following is the financial information of Merry Company for...
Is it possible for a company that has negative net income, negative operating cash flow, and...
Is it possible for a company that has negative net income, negative operating cash flow, and negative free cash flow to end the year with an increase in cash and an increase in stock price? Explain your answer. (Please write between 300-500 words)
Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow...
Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $193,000 on its statement of cash flows for the year ended December 31. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,700 Decrease in inventories 9,300 Depreciation 14,300 Gain on sale of investments 6,400 Increase in accounts payable 2,600 Increase...
Describe and explain three different cash flows: operating cash flow, investment cash flow, and cash flow...
Describe and explain three different cash flows: operating cash flow, investment cash flow, and cash flow from financing activities. What is the relative importance of each, and what factors impact your assessment? Does it vary by industry or business maturity? Imagine that you were structuring a business from the ground up--what percentage of cash flow would you target for each of these three types?
Analyze the differences among accounting profit, operating cash flow, net cash flow, and free cash flow....
Analyze the differences among accounting profit, operating cash flow, net cash flow, and free cash flow. Identify the key stakeholders in cash flow planning and profit estimation processes in the organization, and explain how they are involved in the processes. Analyze the impact of accounting profit, operating cash flow, net cash flow, and free cash flow concepts on decisions in the organization for which you currently work, one that you would like to work for in the future, or a...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT