Which line item connects the income statement to cash flow from operations most directly?

• A. Net income
• B. Revenue
• C. Interest expense
• D. Dividends paid

Answer: (A)

Net income is the line item that directly links the income statement to cash flow from operations because the indirect method for the cash flow statement starts with net income and then adjusts for non-cash charges and changes in working capital to arrive at cash generated by core business activities. Revenue shows how much was earned, but it’s recorded on an accrual basis and may not reflect cash actually received; interest expense is part of net income and gets adjusted during the reconciliation, and dividends paid relate to financing activities, not operating activities. So net income sits at the starting point that connects profitability to the actual cash produced by ongoing operations.