When the indirect method is used,if a prepaid expense account increases during the accounting period,the change in the prepaid expense account is:
A)added to the change in the cash account.
B)added to net income.
C)subtracted from net income.
D)subtracted from the change in the cash account.

Question

Quizplus · Accepted Answer

Cash prepayments increase the balance in prepaid expense accounts,and recording of expenses decreases the balance in prepaid expense accounts.An increase in a prepaid expense account means that cash prepayments this period were greater than expenses.To convert from the higher cash payments number to the lower expense payment number included in net income,we subtract the increase in the prepaid expense accounts from net income to calculate cash flows from operating activities.

When the Indirect Method Is Used,if a Prepaid Expense Account