An increase in inventories is _____ while computing cash flows from operating activities using the indirect method.
A) added to selling expense
B) deducted from net income
C) added to depreciation expense
D) deducted from retained earnings

Question

Quizplus · Accepted Answer

An increase in inventories is deducted from net income when computing cash flows from operating activities using the indirect method. This is because an increase in inventories represents cash that has been invested in the inventory and has not yet been sold, therefore it is not cash that has been generated through operating activities.

An Increase in Inventories Is _____ While Computing Cash Flows