If a firm's accounts receivable increased during the fiscal period, it is necessary to subtract the amount of the increase from the net income when computing the net cash provided by operating activities.

Question

Quizplus · Accepted Answer

Accounts receivable represent revenue that has been earned but not yet received. An increase in accounts receivable indicates that revenue has been earned but payment has not been received. Therefore, the amount of the increase needs to be subtracted from net income to calculate the net cash provided by operating activities since it is not yet cash received.

If a Firm's Accounts Receivable Increased During the Fiscal Period