Which of the following statements regarding calculation of cash flows from operating activities under the indirect method is true?
A) When the indirect method is used, changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flows from operating activities.
B) When the indirect method is used, depreciation expense is added to net income as a step in the process of calculating net cash flows from operating activities.
C) When the indirect method is used, gains on the sale of property, plant and equipment are added to convert net income to net cash flows from operating activities.
D) When the indirect method is used, changes in long-term liabilities are subtracted to convert net income to net cash flows from operating activities.

Question

Quizplus · Accepted Answer

Under the indirect method, depreciation expense is added to net income while changes in current assets are subtracted and changes in current liabilities are added to convert net income to net cash flows from operating activities. Gains on the sale of property, plant and equipment are also added but changes in long-term liabilities are not directly involved in the calculation of cash flows from operating activities.

Which of the Following Statements Regarding Calculation of Cash Flows