Which of the following,under the indirect method,is not a proper adjustment to net income to arrive at net cash flow from operations?
A)Adding a decrease in inventory
B)Adding an increase in salaries payable
C)Adding an increase in prepaid expense
D)All are proper adjustments to net income.

Question

Quizplus · Accepted Answer

Under the indirect method, changes in current assets and current liabilities are adjusted in order to arrive at the cash flow from operating activities. Adding a decrease in inventory (since it is a use of cash), and adding an increase in salaries payable (since it is an increase in a liability) are both proper adjustments. However, adding an increase in prepaid expense (since it is a use of cash) is not a proper adjustment as it is already reflected in the calculation of net income.

Which of the Following,under the Indirect Method,is Not a Proper