Using the indirect method to prepare the statement of cash flows,an increase in accounts receivable is subtracted from net income in calculating Net Cash Provided by Operating Activities.

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An increase in accounts receivable represents money tied up in unpaid customer invoices, which has not yet been collected in cash. Therefore, it is subtracted from net income in calculating the Net Cash Provided by Operating Activities under the indirect method.

Using the Indirect Method to Prepare the Statement of Cash