Question

Indicate whether each of the following items would result in net cash flow from operating activities being higher (h) or lower (L) than net income.

Decrease in Accounts Payable

Answer 1

When there is a decrease in accounts payable, it would result in a lower net cash flow from operating activities than net income.

Step-by-step explanation:

When there is a decrease in accounts payable, it means that the company has paid off some of its debts. This would result in a lower net cash flow from operating activities than net income. The reason is that net income includes non-cash items such as depreciation and amortization, while net cash flow from operating activities only takes into account the actual cash inflows and outflows from day-to-day operations. An example would be if a company had a net income of $100,000 but paid off $20,000 in accounts payable during that period, the net cash flow from operating activities would be $80,000.