When using the indirect method,an increase in current liabilities is:
A) subtracted in the cash flows from financing activities section.
B) subtracted from net income in the cash flows from operating activities section.
C) added to net income in the cash flows from operating activities section.
D) added in the cash flows from investing activities section.

Question

Quizplus · Accepted Answer

An increase in current liabilities indicates that a company has more cash available because it has either delayed payments or taken on new obligations without yet spending cash. In the indirect method of cash flow statement preparation, this increase is added back to net income in the operating activities section to adjust for the fact that it did not affect actual cash flow, even though it impacted net income.

When Using the Indirect Method,an Increase in Current Liabilities Is