If a company uses the indirect method to prepare the statement of cash flows, which of the following items would be added to net income to determine the net cash flow from operating activities?
A)An increase in inventory added to net income to determine the net cash flow from operating activities in the statement of cash flows.
B)A decrease in accounts receivable would be added to net income to determine the net cash flow from operating activities in the statement of cash flows.
C)A decrease in accounts payable would be added to net income to determine the net cash flow from operating activities in the statement of cash flows.
D)An increase in preferred dividends payable would be added to net income to determine the net cash flow from operating activities in the statement of cash flows.

Question

Quizplus · Accepted Answer

A decrease in accounts receivable is added back to net income in the indirect method because it represents cash that was collected, increasing cash flow, but was previously recorded as revenue, not affecting net income at the time of sale.

If a Company Uses the Indirect Method to Prepare the Statement