Assume a company uses the indirect method to prepare its statement of cash flows.If inventory decreases and unearned revenue increases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?
A)Both are added to net income.
B)The change in inventory is added to net income;the change in unearned revenue is subtracted.
C)Both are subtracted from net income.
D)The change in unearned revenue is added to net income;the change in inventory is subtracteD.Using the indirect method,both decreases in current assets and increases in current liabilities are added to net income to convert to cash flows from operating activities.

Question

Quizplus · Accepted Answer

Decreases in inventory (a current asset) and increases in unearned revenue (a current liability) are both added to net income to adjust for cash flows from operating activities.

Assume a Company Uses the Indirect Method to Prepare Its