Which statement about net income and cash flow is true?

Which statement about net income and cash flow is true?

• A. Net income equals cash flow from operations.
• B. Net income after depreciation is a cash flow.
• C. Net income after depreciation is not a cash flow.
• D. Net income is always greater than cash flow.

Answer: (C)

Net income and cash flow come from different bases: accrual accounting vs. actual cash movements. Depreciation is a non-cash expense that reduces net income but does not involve cash outlay. Because of that, net income after accounting for depreciation does not represent cash that has been received or paid. Cash flow from operations, instead, starts with net income and adds back non-cash charges like depreciation, then adjusts for changes in working capital. For example, if net income is 100 and depreciation is 20, cash flow from operations would be about 120 (ignoring working capital changes). So the statement that net income after depreciation is not a cash flow is the true one. The other options mix up the relationship: net income does not equal cash flow from operations, depreciation is non-cash, and net income is not always greater than cash flow since cash flow can be higher or lower depending on non-cash items and working capital.

Net income and cash flow come from different bases: accrual accounting vs. actual cash movements. Depreciation is a non-cash expense that reduces net income but does not involve cash outlay. Because of that, net income after accounting for depreciation does not represent cash that has been received or paid. Cash flow from operations, instead, starts with net income and adds back non-cash charges like depreciation, then adjusts for changes in working capital. For example, if net income is 100 and depreciation is 20, cash flow from operations would be about 120 (ignoring working capital changes). So the statement that net income after depreciation is not a cash flow is the true one. The other options mix up the relationship: net income does not equal cash flow from operations, depreciation is non-cash, and net income is not always greater than cash flow since cash flow can be higher or lower depending on non-cash items and working capital.