Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

-Refer to Exhibit 12-4.How will the change in accounts receivable be reported in the operating activities
A)The increase of $63,000 will be subtracted from net income.
B)The increase of $63,000 will be subtracted from sales revenue.
C)The increase of $63,000 will be added to net income.
D)The increase of $63,000 will be added to sales revenue.
E)None of the answer choices is correct.

Question

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.
 
-Refer to Exhibit 12-4.How will the change in accounts receivable be reported in the operating activities
A)The increase of $63,000 will be subtracted from net income. 
B)The increase of $63,000 will be subtracted from sales revenue. 
C)The increase of $63,000 will be added to net income. 
D)The increase of $63,000 will be added to sales revenue. 
E)None of the answer choices is correct.

Quizplus · Accepted Answer

The change in accounts receivable is a part of the operating activities section of the statement of cash flows under the indirect method. An increase in accounts receivable from the previous period represents a use of cash, and therefore, it is subtracted from net income to arrive at net cash flows from operating activities. Choice A is the only option that reflects this treatment.

Exhibit 12-4 Manning Company Uses the Indirect Method to Prepare the Statement