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

Quizplus · Accepted Answer

An increase in accrued liabilities means that the company has incurred expenses but has not yet paid for them, resulting in an increase in cash outflow in the future. Therefore, the change in accrued liabilities will be added back to net income in the adjustments to reconcile net income to net cash provided by operating activities, resulting in a positive cash flow.

Avatar Company Uses the Indirect Method to Prepare the Statement