When preparing the statement of cash flows under the indirect method,all of the following would be an appropriate procedure except
A)adding depreciation expense.
B)subtracting a decrease in accounts payable.
C)subtracting a decrease in prepaid expenses.
D)adding a decrease in inventories.
E)subtracting a gain from the sale of a fixed asset.

Question

Quizplus · Accepted Answer

When preparing the statement of cash flows under the indirect method, we need to adjust the net income by non-cash expenses, gains, and losses and changes in current assets and liabilities. A decrease in prepaid expenses indicates that the company paid for expenses in advance, so we add it back to the net income to adjust for the cash flow effect. Hence, subtracting a decrease in prepaid expenses would not be an appropriate procedure when preparing the statement of cash flows under the indirect method.

When Preparing the Statement of Cash Flows Under the Indirect