If the indirect method is used to prepare a statement of cash flows, which of the following would be added to net income to arrive at net cash flows from operating activities?
A) Decrease in accounts payable
B) Increase in inventory
C) Decrease in prepaid expenses
D) Increase in accounts receivable

Question

Quizplus · Accepted Answer

A decrease in prepaid expenses indicates that cash was not used for these expenses during the period, so it is added back to net income in the operating activities section of the cash flow statement.

If the Indirect Method Is Used to Prepare a Statement