When using the indirect method to determine operating cash flows, how is an increase in accounts receivable during the year shown on the Statement of Cash Flows?
A)operating activity
B)investing activity
C)financing activity
D)noncash investing and financing activity
E)not reported on the statement of cash flows

Question

Quizplus · Accepted Answer

An increase in accounts receivable during the year is a result of sales made on credit during the year. Since these sales are included in the net income on the income statement but have not yet been collected in cash, they are added back in the operating section of the statement of cash flows using the indirect method.

When Using the Indirect Method to Determine Operating Cash Flows