Question

Certain items in the income statement are called noncash items, wherein the cash flow for the expense occurs outside of the reporting period. These include which of the following?

Group of answer choices

set-up costs

variable expenses

depreciation

inventory

Inventories are eliminated from current assets in the quick ratio (acid test ratio) because:

Group of answer choices

inventories are less liquid than marketable securities and accounts receivable.

inventories rarely make up a significant proportion of current assets.

inventory is generally held for only a short period of time.

none of the above

Answer 1

Certain items in the income statement are called noncash items, wherein the cash flow for the expense occurs outside of the reporting period. These include which of the following?

The answer is DEPRECIATION

Depreciation is a charge against income but it leads to no cash outflow. Cash outflow occurs at the time the asset is purchased

Inventories are eliminated from current assets in the quick ratio (acid test ratio) because:

inventories are less liquid than marketable securities and accounts receivable.

Quick ratio is calculated by taking highly liquid assets into account and hence inventory is not taken