Series 79 practice questionmediumFinancial Statement Analysis
How does a large increase in deferred revenue generally affect a company’s operating cash flow in the short term?
- ANo impact
- BDecreases operating cash flow
- CIncreases operating cash flow✓ Correct answer
- DOnly impacts investing cash flow
Explanation
Why C — Increases operating cash flow
Deferred revenue increases operating cash flow as cash is received up front. Mistaking this for revenue or ignoring timing can lead to errors in cash flow analysis.
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