Which of the following changes could contribute toward the value of net income exceeding cash from operations (CFO)?

• A. Decrease in Accounts Payable
• B. Increase in Accounts Receivable
• C. Increase in Inventory
• D. Decrease in Accrued Expenses

Answer: (A)

Net income is based on accrual accounting, while cash from operations measures actual cash movements. The gap between the two often comes from how working capital items and liabilities are managed.

A decrease in Accounts Payable means the company is paying off suppliers, which reduces cash paid in the period. Net income, already affected by expenses when they’re incurred, doesn’t change with this cash outflow. So CFO falls while net income stays the same, making net income exceed cash from operations.

The other options involve changes that affect the timing of cash inflows or outflows tied to assets or other liabilities. For example, an increase in Accounts Receivable delays cash collection (reducing CFO) and an increase in Inventory uses cash, both widening the gap as well. A decrease in Accrued Expenses also reduces CFO by cash payments toward previously recognized expenses. However, the direct, immediate cash outflow from paying down payables is the clearest single factor among the choices that pushes net income above CFO.