On a statement of cash flows prepared using the indirect method,an increase in accounts payable during the period is:
A)added to net income to determine net cash provided by operating activities.
B)deducted from net income to determine net cash provided by operating activities.
C)shown as a cash inflow in the investing activities section.
D)shown as a cash inflow in the financing activities section.

Question

Quizplus · Accepted Answer

An increase in accounts payable indicates that a company has incurred expenses for which it has not yet paid cash. In the indirect method of preparing a statement of cash flows, this increase is added back to net income in the operating activities section because it represents a source of cash (i.e., expenses incurred without a corresponding cash outflow during the period).

On a Statement of Cash Flows Prepared Using the Indirect