4.7.Indicate whether each of the following items would result in net cash flowfrom operating activities being higher (H) or lower (L) than net income.1.Decrease in accounts payable.2.Depreciation expense.3.Decrease in inventory.4.Gain on sale of assets.5.Increase in accounts receivable.6.Increase in deferred tax liabilities.7.Decrease in accrued liabilities.8.Increase in prepaid expenses.9.Increase in deferred revenue.10.Decrease in interest receivable.

Decrease in accounts payable: Lower (L)

• A decrease in accounts payable means that the company has paid off some of its short-term liabilities, which is a use of cash and would lower the net cash flow from operating activities.

Depreciation expense: Higher (H)

• Depreciation is a non-cash expense that reduces net income but does not affect cash flow, so adding it back in would result in higher net cash flow from operating activities.

Decrease in inventory: Higher (H)

• A decrease in inventory means that the company has sold more goods than it has purchased, which increases cash flow from operating activities.

Gain on sale of assets: Lower (L)

• A gain on the sale of assets is included in net income but is considered an investing activity, not an operating activity. Therefore, it would be subtracted out in the cash flow from operating activities section, resulting in lower net cash flow from operating activities.

Increase in accounts receivable: Lower (L)

• An increase in accounts receivable means that the company has made sales on credit but has not yet received cash, which would lower the net cash flow from operating activities.

Increase in deferred tax liabilities: Higher (H)

• An increase in deferred tax liabilities means that the company has a future tax obligation, which is a source of cash and would increase the net cash flow from operating activities.

Decrease in accrued liabilities: Lower (L)

• A decrease in accrued liabilities means that the company has paid off some of its expenses or obligations, which is a use of cash and would lower the net cash flow from operating activities.

Increase in prepaid expenses: Lower (L)

• An increase in prepaid expenses means that the company has paid for goods or services in advance, which is a use of cash and would lower the net cash flow from operating activities.

Increase in deferred revenue: Higher (H)

• An increase in deferred revenue means that the company has received cash for goods or services it has not yet delivered, which is a source of cash and would increase the net cash flow from operating activities.

Decrease in interest receivable: Higher (H)

• A decrease in interest receivable means that the company has collected on its interest receivables, which is a source of cash and would increase the net cash flow from operating activities.