Chapter 16, Problem 1MC

Which of the following statements is false?

A. Noncash activities should be reported in accrual basis financial statements.

B. Net cash flow from operating activities relates to normal business operations.

C. Net income usually equals net cash flow from operating activities.

D. The statement of cash flows is an essential part of the basic financial statements.

To determine

Concept introduction:

Cash Flow statement:

The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

• Cash flows from operating activities
• Cash Flows from investing activities
• Cash flows from financing activities

(Note: Cash flows from operating activities can be prepared using direct or indirect method).

To choose:

The false statement

Answer to Problem 1MC

Net income usually equals net cash flow from operating activities

Explanation of Solution

Explanation for correct answer:

Net income is never equal to the net cash flow from operating activities. Net income is calculated after considering cash as well as not cash items and no operating items, so net income can never be equal to the net cash flow from operating activities So, option C is correct.

Explanation for incorrect answers:

A. It is true that all non cash activities are reported using the accrual method of account. Hence, this option is incorrect.

B. Cash flow operating activity covers all the business operational activities. Hence, this option is incorrect.

D. There are four essential financial statements; cash flow statement is one of them. Hence, this option is incorrect.