Which of the following statements regarding calculation of cash flows from operating activities under the indirect method is true?
A)When the indirect method is used,changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flow from operating activities.
B)When the indirect method is used,depreciation expense is added to net income as a step in the process of calculating net cash flow from operating activities.
C)When the indirect method is used,gains on the sale of property,plant and equipment are added to convert net income to net cash flow from operating activities.
D)When the indirect method is used,changes in long-term liabilities are subtracted to convert net income to net cash flow from operating activities.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash expense that is added back to net income when calculating net cash flow from operating activities under the indirect method. Changes in current liabilities are added and changes in current assets are subtracted to convert net income to net cash flow from operating activities. Gains on the sale of property, plant and equipment are also added to net income under the indirect method. Changes in long-term liabilities are not directly related to operating activities and are not included in the calculation of net cash flow from operating activities.

Which of the Following Statements Regarding Calculation of Cash Flows