Question

Which of the following statements is false?

1) An increase in accounts payable represents accounts not yet collected in cash.
2) To obtain cash flow from operations, the reported net income must be adjusted.
3) A negative cash flow can occur in a year in which net income is positive.
4) An increase in accounts receivable represents accounts not yet collected in cash.

Answer 1

The false statement is: An increase in accounts payable represents accounts not yet collected in cash.

Step-by-step explanation:

The false statement is:

1. An increase in accounts payable represents accounts not yet collected in cash.

An increase in accounts payable actually represents the amount owed by a company to its suppliers or creditors for goods or services purchased on credit. It is a liability, not an asset, and does not represent accounts not yet collected in cash. The other statements are true:

1. To obtain cash flow from operations, the reported net income must be adjusted. This adjustment is necessary because net income includes non-cash expenses and revenues that do not affect actual cash inflows or outflows.
2. A negative cash flow can occur in a year in which net income is positive. This can happen if a company has significant non-cash expenses or if it has made large investments in assets, which require upfront cash payments.
3. An increase in accounts receivable represents accounts not yet collected in cash. Accounts receivable are assets representing amounts owed to a company by its customers for goods or services sold on credit.