A company uses the indirect method to prepare the statement of cash flows. In determining the net cash flow from operating activities, which of the following items would be added to net income?
A)An increase in dividends paid would be added to net income.
B)An increase in accrued liabilities would be added to net income.
C)A decrease in accounts payable would be added to net income.
D)A gain on the sale of land would be added to net income.

Question

Quizplus · Accepted Answer

An increase in accrued liabilities represents an increase in expenses that have been incurred but not yet paid. Therefore, this amount needs to be added back to net income to reflect the cash outflow for these expenses. Dividends paid and gains on the sale of land are not included in operating activities, and a decrease in accounts payable represents a decrease in expenses, which would be subtracted from net income in the operating activities section.

A Company Uses the Indirect Method to Prepare the Statement