The comparative balance sheets of Midnite Corp.for 2017 and 2016 indicate that short-term trade notes receivable increased from $5,000 in 2016 to $75,000 in 2017.How will this change be reported on Midnite's statement of cash flows, if Midnite uses the indirect method?
A) It will be included in the amount of cash and cash equivalents at the end of 2017.
B) It will be reported as a deduction from net income in the operating activities section.
C) It will be reported as a cash outflow in the investing activities section.
D) It will be added to net income in the operating activities section.

Question

Quizplus · Accepted Answer

The increase in short-term trade notes receivable represents cash that was not collected from customers during the period. In the indirect method of preparing the statement of cash flows, increases in current assets (other than cash and cash equivalents) are deducted from net income in the operating activities section to reconcile net income to net cash provided by operating activities.

The Comparative Balance Sheets of Midnite Corp