A reconciling item (R) in the statement of cash flows a. is any item that reduce
ID: 2528717 • Letter: A
Question
A reconciling item (R) in the statement of cash flows
a. is any item that reduces or increases income
b. is any item that reduces or increases NCF-operations
c. is any amount causing income to change by an amount different from its effect on operating cash
d. is any amount causing income to change by an amount different from its effect on cash
e. is any item that does not affect operating cash flow
a. is any item that reduces or increases income
b. is any item that reduces or increases NCF-operations
c. is any amount causing income to change by an amount different from its effect on operating cash
d. is any amount causing income to change by an amount different from its effect on cash
e. is any item that does not affect operating cash flow
Explanation / Answer
A reconciling item (R) in the statement of cash flows:
b. is any item that reduces or increases NCF-operations.
In accrual accounting, some things change your profit but don't actually change your cash flow. Other things have an effect on cash flow but don't actually affect your profit. Reconciling net income and operational cash flow involves adding or subtracting such items based on whether they affected profit or cash flow. The first step here is to add up all non-cash expenses you reported during the period. Depreciation and amortization are examples of non-cash expenses. Because they were reported as expenses, they reduced net income as shown on the income statement, but they had no effect on cash flow.