Question

One basic technique used to evaluate afterminustax operating cash flows is to​ ________. A. subtract cash expenses from noncash charges B. subtract depreciation from operating revenues C. add cash expenses to net income D. add noncash charges to net income

Answer 1

Answer: The answer is D. add non-cash charges to net income.

Explanation: Based on the limited information provided in the question, for indirect cash flows, to evaluate after-tax operating cash flows, you have to add back the non-cash items to net income.

Non-cash items such as depreciation, loss on sale of assets, amortization usually lead to reduction in net income but they are not actual payment to anyone. To arrive at the cash flows from operating activities, these non-cash items have to be added back to the net income to reflect the actual cash operating activities.