If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?
A)Decrease in accrued liabilities.
B)Decrease in income taxes payable.
C)Decrease in accounts receivable.
D)Increase in prepaid expenses.

Question

Quizplus · Accepted Answer

In the indirect method of preparing a statement of cash flows, non-cash expenses are added back to net income and non-cash revenues are deducted to arrive at the amount of cash generated or used by operations during the period. Changes in current assets and liabilities, such as accounts receivable, are also taken into account. Therefore, a decrease in accounts receivable would be added to net income to arrive at net cash flows from operating activities. Choices A, B, and D do not directly affect net income and would not be added back to arrive at net cash flows from operating activities.

If the Indirect Method Is Used to Prepare a Statement