Describe the one adjustment necessary to reconcile net income to cash provided by operations that was not initially a part of the statement of cash flows until you made some changes in the reports layout. When adjustments are made to the financial reports, where are they noted? Why are these "notes" important for investors and other users of the financial reports?
What Is Operating Cash Flow:
A company's Operating Cash Flow is presented in the top portion of the cash flow statement. The Operating Cash Flow is the net cash generated or used by the company's core operations (i.e. income) as well as through changes to its working capital.
Answer and Explanation:
Adjustment selected: Depreciation expense
- Because the Depreciation expense is a non-cash expense, it must be added back to net income in order to reconcile net income to the operating cash flow.
When adjustments are made (assuming the financial statements are restated), the adjusted figures are reported in a separate column side-by-side the unadjusted figures. This allows users to compare data from the before and after the adjustment.
Notes are crucial because they provide much more detailed information that is necessary to understand a company's true financial state. For instance, the note on segmented information will show the performance of every single operating segment of the company.
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Learn more about this topic:
from Finance 101: Principles of FinanceChapter 10 / Lesson 4