Question

Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?

1) Depreciation expense
2) Increase in accounts receivable
3) Decrease in accounts payable
4) Increase in inventory

Answer 1

Depreciation expense decreases net income but does not affect the operating cash flow of a firm.

Step-by-step explanation:

The correct answer is option 1) Depreciation expense.

Depreciation expense is a non-cash expense that decreases net income but does not affect the operating cash flow of a firm. This is because depreciation is an accounting concept that allocates the cost of an asset over its useful life, rather than representing an actual outflow of cash.

For example, if a firm has a depreciation expense of $10,000 for the year, it reduces the firm's net income by $10,000. However, this depreciation expense does not require the firm to spend any cash. Therefore, it does not affect the firm's operating cash flow.