For a firm using the indirect method to prepare cash flows from operating activities,a decrease in a company's pension liability account should be deducted from net income to arrive at cash flow from operating activities.

Question

Quizplus · Accepted Answer

A decrease in the pension liability account is a non-cash expense, hence it should be added back to net income while calculating the operating cash flow under the indirect method. Since it is a decrease, it should be deducted (subtracted) from net income.

For a Firm Using the Indirect Method to Prepare Cash