Under the direct method of determining the net cash provided by (used in) operating activities on the statement of cash flows, a decrease in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.

Question

Quizplus · Accepted Answer

Under the direct method, a decrease in prepaid expenses is not added to selling and administrative expenses. Instead, it reflects a prior period expense now recognized, affecting cash flow from operating activities but not directly adjusting selling and administrative expenses.

Under the Direct Method of Determining the Net Cash Provided