Question

Adjustments to net income in calculating operating cash flows include:

(Select all that apply):
- non operating items
- changes in current assets and current liabilities
- non cash items
- changes in concurrent assets and concurrent liabilities

Answer 1

In calculating operating cash flows, non-cash items, changes in current assets and current liabilities, and non-operating items are adjusted to the net income. The term 'concurrent assets and liabilities' is not relevant to financial statement adjustments.

Step-by-step explanation:

When calculating operating cash flows using the indirect method on the statement of cash flows, we start with net income and make adjustments to convert it from an accrual basis to a cash basis. The adjustments that need to be made include:

• Non-cash items: These are expenses or incomes that affected net income but did not involve actual cash transactions. Common non-cash items to adjust include depreciation and amortization.
• Changes in current assets and current liabilities: This refers to adjustments for increases or decreases in accounts such as inventory, accounts receivable, accounts payable, and accrued expenses, among others. Increases in current assets decrease cash flows, while increases in current liabilities increase cash flows.
• Non-operating items: These include any gains or losses not related to the core operations of the business, such as gains or losses on the sale of assets. These items are adjusted out because they do not pertain to operating cash flows.

There is no such term as 'concurrent assets and concurrent liabilities' in the context of financial statements adjustments, which seems to be a typo in the given options.