Which of the following is commonly shown on the Cash Flow Statement as an adjustment?

• A. Inventory write-down
• B. Stock-Based Compensation
• C. Inventory purchases
• D. Interest expense

Answer: (B)

In the cash flow statement, especially when using the indirect method, net income is reconciled to cash from operating activities by adjusting for items that affected earnings but didn’t involve actual cash in the period. Stock-based compensation fits this because it is an expense that lowers net income, yet it does not require a cash outlay when granted. So, you add back stock-based compensation to net income to show the true cash generated from operations. This makes it a standard, recurring adjustment you’ll typically see in the operating section.

Other options represent cash effects or non-recurring adjustments rather than routine non-cash add-backs: inventory purchases are cash outlays reflected in changes in working capital, not a separate non-cash adjustment; interest expense is a cash outflow that’s handled in the financing or operating sections depending on presentation; and an inventory write-down is a non-cash impairment that may appear but isn’t as consistently shown as a separate adjustment in every period.