In calculating net cash provided by operating activities using the indirect method, an increase in prepaid expenses during a period is
A)deducted from profit.
B)added to profit.
C)ignored because it does not affect profit.
D)ignored because it does not affect expenses.

Question

Quizplus · Accepted Answer

An increase in prepaid expenses indicates that the company has paid cash in advance for goods or services that will be used in future periods. This means that the cash outflow has already occurred, but the expenses have not yet been recognized in the income statement. Therefore, when calculating net cash provided by operating activities using the indirect method, the increase in prepaid expenses is deducted from profit to adjust for the non-cash expense and reconcile the difference between cash and accrual accounting.

In Calculating Net Cash Provided by Operating Activities Using the Indirect