Nelson Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: The change in Accounts Payable will be shown as a negative cash flow in the adjustments to Net Income.

Question

Nelson Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet:  The change in Accounts Payable will be shown as a negative cash flow in the adjustments to Net Income.

Quizplus · Accepted Answer

The increase in accounts payable represents an increase in liabilities, which means the company has received goods or services on credit but has not yet paid for them. This increase in accounts payable is added back to net income when calculating cash flows from operating activities using the indirect method, resulting in a negative adjustment to net income.