Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Decrease in Prepaid Expenses-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

A decrease in prepaid expenses indicates that expenses were recognized without a cash outflow during the period, so it is added back to net income to calculate cash flows from operating activities.

Assume the Indirect Method Is Used to Compute Net Cash