Questions: If you have a cash deficit on your income statement, you are insolvent. a. True b. False

The answer is b. False.

Explanation:

• A cash deficit on an income statement does not necessarily mean that a company is insolvent. Insolvency refers to a situation where a company is unable to meet its financial obligations as they come due. This is more about the company's overall financial health and liquidity rather than just a single period's cash flow.

• An income statement shows the company's revenues and expenses over a specific period, resulting in net income or loss. A cash deficit on the income statement indicates that expenses exceeded revenues during that period, but it does not account for other sources of cash, such as financing or investing activities.

• Insolvency is typically assessed by looking at the balance sheet and cash flow statement to determine if the company has enough assets to cover its liabilities and if it can generate sufficient cash flow to meet its obligations.

• For example, a company might have a cash deficit in one period due to high capital expenditures or temporary operational challenges but still have strong assets or access to credit that prevent insolvency.