Practice prompt · Q:transactions-to-statements/indirect-cash-flow-controls-001

Diagnose a sign-correct but scope-weak reconciliation

Formative check on correcting signs, preserving adjustment meanings, and testing entity, period, version, and noncash movement scope.

Updated Aug 6, 2026 Review due Nov 6, 2026

Practice

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A draft starts with $12,000 net income, adds $3,000 depreciation, adds a $2,000 Accounts Receivable increase, adds a $4,000 Inventory increase, and adds a $1,000 Accounts Payable increase, reporting $22,000 operating cash flow. A same-scope direct schedule reports $10,000. What is the strongest correction and control response?

Choose the best answer. A Accept $22,000 because every balance increased and the depreciation addback is a positive Cash source. B Correct the signs to reach $10,000, then verify the same entity, period, units, statement version, account classifications, gross movements, and excluded noncash changes before accepting the bridge. C Correct the signs to reach $10,000; the zero difference from direct operating cash proves every account and classification is complete. D Remove depreciation entirely from both net income and the cash-flow statement, then use only the three ending balances.

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Answer: B

The corrected bridge is $12,000 plus $3,000 minus $2,000 minus $4,000 plus $1,000, or $10,000. Choice B is correct because a numerical tie is not the entire control: the reviewer must establish aligned scope and rule out noncash movements that raw opening-to-ending differences cannot isolate.