(Appendix) When preparing a schedule for the calculation of cash generated from operating activities under the direct method, an increase in Prepaid Insurance is
A) subtracted from cost of goods sold.
B) added to cost of goods sold.
C) added to operating expenses.
D) subtracted from operating expenses.

Question

Quizplus · Accepted Answer

An increase in Prepaid Insurance is added to operating expenses because it represents a cash outflow that has not yet been recognized as an expense in the income statement.

(Appendix) When Preparing a Schedule for the Calculation of Cash