Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities using the indirect method?
A)An increase in wages payable will be added to net income.
B)A gain on the sale of a depreciable asset will be subtracted from net income.
C)An increase in prepaid expenses will be subtracted from net income.
D)An increase in income taxes payable will be subtracted from net income.

Question

Quizplus · Accepted Answer

An increase in income taxes payable indicates that the taxes are incurred but not yet paid, which increases cash flows. Therefore, it should be added to net income, not subtracted, when adjusting net income to cash flows from operating activities using the indirect method.

Which of the Following Statements Does Not Correctly Describe an Adjustment