If a company is using the indirect method to prepare the statement of cash flows, identify where an increase in the accounts receivable account should be reported:
A) A decrease in cash flows from investing activities
B) An increase in cash flows from operating activities
C) An increase in cash flows from investing activities
D) A decrease in cash flows from operating activities
E) An increase in cash flows from financing activities

Question

Quizplus · Accepted Answer

An increase in the accounts receivable account represents an increase in the amount of cash that is tied up in outstanding customer invoices, which means that cash is not being collected as quickly as it could be. This represents a decrease in operating cash flows because it indicates that the company's customers are taking longer to pay their bills. Therefore, the increase in the accounts receivable account should be reported as a decrease in cash flows from operating activities.

If a Company Is Using the Indirect Method to Prepare