Practice prompt · Q:statement-presentation-comprehensive-income-and-disclosure/practice-cash-limit

Check whether income is cash

Distinguish reported income from cash available for debt payments.

Updated Sep 13, 2026 Review due Dec 13, 2026

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Net income rises from $100 thousand to $150 thousand, but net cash from operating activities falls from $90 thousand to $20 thousand. Receivables also rise. A lender wants to know whether the company can make its next debt payment. Which conclusion is supported?

Choose the best answer. a The lower operating cash flow proves the company cannot make the payment. b The higher net income proves the company has $150 thousand available for the payment. c Reported net income rose, but the lender still needs cash collections, debt terms, and other cash needs to judge payment capacity. d The rise in receivables proves the company will collect enough cash before the payment is due.

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Answer: c

Higher net income does not establish available cash. Check collections, current cash, payment terms, and other cash needs alongside the cash-flow statement.