Under the direct method, as an adjustment to operating expenses per the income statement, an increase in accrued liabilities would be added to operating expenses to determine cash payments for operating expenses.

Question

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Under the direct method, cash payments for operating expenses are calculated by adjusting operating expenses for changes in related balance sheet accounts. An increase in accrued liabilities indicates that expenses have been incurred but not yet paid, so it would not be added to operating expenses to determine cash payments. Instead, it would be subtracted to reflect that cash payments are less than the expenses recognized.

Under the Direct Method, as an Adjustment to Operating Expenses