Which of the following adjustments would not increase operating cash flows?

Disable ads (and more) with a membership for a one time $4.99 payment

Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

The adjustment that would not increase operating cash flows is related to a gain on the sale of assets. When a company sells an asset for more than its book value, it records a gain, which is deducted when calculating the operating cash flows on the cash flow statement. This deduction is necessary because gains are not part of the core operating activities of the business; they are considered non-operating items.

In contrast, increased depreciation expense is a non-cash charge that reduces net income but does not affect cash flows directly, resulting in an increase to operating cash flows when adjusted. Increased current liabilities indicate that the company has obligations that will be settled in the future, which effectively increases cash available in the present. A loss on the sale of assets reduces net income, but it is added back in operating cash flows because it reflects a non-cash expense, thereby increasing cash flows.

Understanding these dynamics is essential as they reflect the difference between accrual accounting and cash flows, emphasizing how certain non-cash items impact reported income without affecting the actual cash position of the business.