Accrual accounting defines something called “net income” whi…
Accrual accounting defines something called “net income” which is intended to measure changes in the economic value of the firm and is different from cash flows. Imagine that you were trying to adjust a Monopoly company’s net income to find its cash flows from operating activities at the end of 2021 (as you would if you were preparing the operating section of the cash flow statement using the indirect method). The company’s balance sheet shows that it had accounts receivable of $100 at the end of 2020 and accounts receivable of $200 at the end of 2021. How would you use this information to adjust net income, bringing it closer to cash flows from operating activities?