Under the direct method, as an adjustment to operating expenses per the statement of income, a decrease in prepaid expenses would be added to operating expenses to determine cash payments for operating expenses.

Question

Quizplus · Accepted Answer

Under the direct method, a decrease in prepaid expenses represents an expense that has been recognized but not yet paid in cash, so it would not be added to operating expenses. Instead, it reflects a future cash outflow and adjustments for changes in prepaid expenses are typically not made in the calculation of cash payments for operating expenses under the direct method.

Under the Direct Method, as an Adjustment to Operating Expenses