QUESTION 26 Net Income ____ cash because corporations must use the ____ accounti

Question

QUESTION 26

Net Income ____ cash because corporations must use the ____ accounting method which means revenue can include ___ and expenses can include ______.

is; cash basis; accounts receivable; prepaid expenses

is not; cash basis; cash sales; cash payments

is; accrual; notes payable; pro-rated revenue

is not; accrual; accounts receivable; unpaid expenses

is; cash basis; accounts receivable; prepaid expenses

is not; cash basis; cash sales; cash payments

is; accrual; notes payable; pro-rated revenue

is not; accrual; accounts receivable; unpaid expenses

Explanation / Answer

Net Income is not cash because corporations must use the accrual accounting method which means revenue can include accounts receivable and expenses can include unpaid expenses

This is the reason why cash flow statement is prepared to understand the cash in hand and changes in cash happended during the period. Income will never be equal to cash in any real company. Any company has to have A/R for increasing sales and A/P for reducing its working capital required.

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