Presented below is the operating activities section of a statement of cash flows for 2014: $\begin{array}{llr}
\underline {\text { Operitima activities. }} \
\text {Net income }& & \$ 120,000 \
\text {Add: }&\text {Depreciation } &10,000 \
& \text { Decrease in accountsreceivable }& \underline {5,000} \
& &\$ 135,000 \
\text { Deduct: }& \text { Decrease in accounts payable }&\underline {15,000} \
& \text { Net cash inflow from operating activities }&\underline {\$ 120,000}
\end{array}$ Which method of preparing the operating activities section was used?
A)The direct method.
B)The indirect method.
C)Either method.
D)Cannot be determined without further information.

Question

Presented below is the operating activities section of a statement of cash flows for 2014: $\begin{array}{llr}
\underline {\text { Operitima activities. }} \
\text {Net income  }& & \$ 120,000 \
\text {Add:   }&\text {Depreciation  } &10,000 \
& \text { Decrease in accountsreceivable }& \underline {5,000} \
& &\$ 135,000 \
\text { Deduct:  }& \text { Decrease in accounts payable }&\underline {15,000} \
& \text { Net cash inflow from operating activities }&\underline {\$ 120,000}
\end{array}$ Which method of preparing the operating activities section was used?
A)The direct method.
B)The indirect method.
C)Either method.
D)Cannot be determined without further information.

Quizplus · Accepted Answer

The deduction for the decrease in accounts payable indicates that the indirect method was used to prepare the operating activities section. Under the indirect method, changes in current assets and liabilities are adjusted to reconcile net income to net cash inflow from operating activities.

Presented Below Is the Operating Activities Section of a Statement