When using the indirect method to complete the cash flows from operating activities section,what is the proper treatment for an increase in the Inventory account?
A) Deduct the increase to cash payments to suppliers
B) Add the increase to net income
C) Add the increase to cash collections from customers
D) Deduct the increase from net income

Question

Quizplus · Accepted Answer

An increase in the inventory account means that more money was spent on inventory purchases during the period, which would not be reflected in the net income. Therefore, the increase in inventory should be deducted from net income when using the indirect method to complete the cash flows from operating activities section.

When Using the Indirect Method to Complete the Cash Flows