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 change in Accounts Payable will be shown as a negative cash flow in the adjustments to Net Income because an increase in accounts payable means that the company has received goods or services but has not yet paid for them, resulting in an increase in liabilities and a decrease in cash flow. The indirect method reconciles net income to the actual cash generated or used during the period.