Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | }
\hline&2014 & 2013 & \text { Increase/decrease }\
\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \
\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \
\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \
\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \
\hline
\end{array}$$
-
The change in accounts payable will be shown as a positive cash flow in the adjustments to Net income.

Question

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
 $$\begin{array} { | l | r | r | r | } 
\hline&2014 & 2013 & \text { Increase/decrease }\
\hline \text { Accounts payable } & \$ 4,000 & \$ 6,000 & \$ ( 2,000 ) \
\hline \text { Accrued liabilities } & 2,000 & 1,000 & 1,000 \
\hline \text { Long-term notes payable } & 84,000 & 90,000 & ( 6,000 ) \
\hline \text { Total liabilities } & \$ 90,000 & \$ 97,000 & \$ ( 7,000 ) \
\hline
\end{array}$$ 
-
The change in accounts payable will be shown as a positive cash flow in the adjustments to Net income.

Quizplus · Accepted Answer

The increase in accounts payable is added back as an adjustment to net income under the indirect method, but it is shown as a negative cash flow because it represents an increase in liabilities. Therefore, it would be shown as a negative adjustment to the net income in the statement of cash flows.

Avatar Company Uses the Indirect Method to Prepare the Statement