Question

Recognizing a cash expense will ______. (Multiple select question)

A) Not affect the amount of retained earnings shown on the statement of changes in stockholders' equity.
B) Cause an increase in the amount of net income shown on the income statement.
C) Cause the amount of assets shown on the balance sheet to decrease.
D) Cause a decrease in the net cash flow from operations shown on the statement of cash flows.
E) All of the above.

Answer 1

Recognizing a cash expense decreases assets on the balance sheet and the net cash flow from operations, while reducing net income, which can later decrease retained earnings.

Step-by-step explanation:

Recognizing a cash expense will cause the amount of assets shown on the balance sheet to decrease. It will also cause a decrease in the net cash flow from operations shown on the statement of cash flows. Recognizing a cash expense will not affect the amount of retained earnings shown on the statement of changes in stockholders' equity directly at the moment of recognition but may do so indrectly as it reduces net income, which subsequently reduces retained earnings. It will not cause an increase in the amount of net income shown on the income statement; in fact, it would reduce net income.