Question

Which of the following would decrease net cash provided by operating activities?

a. Decrease in short-term notes payable.
b. Depreciation expense.
c. Decrease in inventory.
d. Loss on disposal of equipment.

Answer 1

The correct answer is d. Loss on disposal of equipment. When a company recognizes a loss on the disposal of equipment, it means they sold or disposed of the equipment for less than its book value. This results in a decrease in net cash provided by operating activities because it represents a cash outflow.

Step-by-step explanation:

The correct answer is d. Loss on disposal of equipment. When a company recognizes a loss on the disposal of equipment, it means they sold or disposed of the equipment for less than its book value. This results in a decrease in net cash provided by operating activities because it represents a cash outflow.

Let's imagine a scenario: A company sells a piece of equipment for $10,000, but its book value is $15,000. The company recognizes a loss of $5,000 ($10,000 - $15,000). This loss would be subtracted from net income in the operating activities section of the statement of cash flows, resulting in a decrease in net cash provided by operating activities.