Changes to Noncash Current Asset and Current Liability Accounts

Changes to Noncash Current Asset and Current Liability Accounts

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Changes to Noncash Current Asset and Current Liability Accounts A final adjustment in reconciling net income to net cash provided by operating activities involves examining all changes in current asset and current liability accounts. The accrual accounting process records revenues in the period earned and expenses in the period incurred. For example, companies use Accounts Receivable to record amounts owed to the company for sales that have been made but for which cash collections have not yet been received. They use the Prepaid Insurance account to reflect insurance that has been paid for, but which has not yet expired, and therefore has not been expensed. Similarly, the Salaries Payable account reflects salaries expense that has been incurred by the company but has not been paid. As a result, we need to adjust net income for these accruals and prepayments to determine net cash provided by operating activities. Thus we must analyze the change in each current asset and current liability account to determine its impact on net income and cash. Changes in Noncash Current Assets. The adjustments required for changes in noncash current asset accounts are as follows: Deduct from net income increases in current asset accounts,
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Changes to Noncash Current Asset and Current Liability Accounts

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