In preparing the statement of cash flows by the indirect method,which of the following is a correct statement of one of the general rules to convert net income to a cash-basis equivalent?
A) Losses on the sale of long-term assets are subtracted from net income.
B) All noncash expenses and losses are subtracted from net income.
C) Increases in current assets are subtracted from net income.
D) Decreases in current liabilities are added to net income.

Question

Quizplus · Accepted Answer

Increases in current assets are subtracted from net income because they represent uses of cash that do not affect net income directly. This adjustment is necessary to convert the accrual-based net income to a cash basis.

In Preparing the Statement of Cash Flows by the Indirect