Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Inventory-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A) Add to net income to arrive at net cash flows from operating activities
B) Subtract from net income to arrive at net cash flows from operating activities
C) Not used to adjust net income to calculate net cash flows from operating activities

Question

Quizplus · Accepted Answer

An increase in inventory represents a use of cash, as it indicates that more funds were spent to purchase inventory. Therefore, it needs to be subtracted from net income to arrive at net cash flows from operating activities.

Assume the Indirect Method Is Used to Compute Net Cash