Which statement regarding the indirect method is false?
A)Depreciation expense is added to net income.
B)An increase in accounts receivable is added to net income.
C)An increase in accounts payable is added to net income.
D)An increase in merchandise inventory is subtracted from net income.

Question

Quizplus · Accepted Answer

An increase in accounts receivable is subtracted from net income in the indirect method of cash flow statement preparation, not added. This is because an increase in accounts receivable represents sales that have not yet been collected in cash, thus not affecting the cash flow directly.

Which Statement Regarding the Indirect Method Is False