Which of the following would NOT be an adjustment to profit using the indirect method?
A) depreciation expense
B) an increase in prepaid insurance
C) an increase in inventories
D) an increase in land

Question

Quizplus · Accepted Answer

The indirect method of preparing a cash flow statement starts with net income and adjusts for changes in balance sheet accounts to convert the earnings to a cash basis. Depreciation expense (A) is added back to net income because it is a non-cash expense. Increases in current assets like prepaid insurance (B) and inventories (C) are subtracted because they represent cash outflows. However, an increase in land (D) is not adjusted in the operating activities section because it is considered an investing activity, not an operating activity.

Which of the Following Would NOT Be an Adjustment to Profit