Practice prompt · Q:transactions-to-statements/income-versus-operating-cash-001

Equal income and operating cash, unequal components

Formative check on explaining a coincidental equality between net income and direct operating cash flow.

Updated Aug 6, 2026 Review due Nov 6, 2026

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Northstar reports $15,000 revenue, $5,000 rent expense, and $2,000 depreciation expense, so net income is $8,000. It collected $13,000 from customers, paid $5,000 rent, and Accounts Receivable increased $2,000. No other operating reconciliation item applies. Which explanation is correct?

Choose the best answer. A The equal totals prove that every recognized revenue and expense had the same-period Cash movement. B Operating cash flow is $8,000; starting with $8,000 net income, add $2,000 depreciation and subtract the $2,000 Accounts Receivable increase. C Operating cash flow is $6,000 because depreciation must be paid in cash when it is recognized. D Operating cash flow is $10,000 because the Accounts Receivable increase should be added to net income.

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Answer: B

Direct operating cash flow is $13,000 customer collections less $5,000 rent paid, or $8,000. The indirect bridge starts with $8,000 net income, adds back $2,000 noncash depreciation, and subtracts the $2,000 increase in Accounts Receivable, also reaching $8,000. Equality of endpoints does not establish equality of components. Choice B is correct.