Virginia Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: How will the change in Accounts Payable be shown on the statement of cash flows?
A)as an addition to Net Income
B)as a deduction from Net Income
C)as a deduction from investing cash flows
D)as an addition to operating cash flows

Question

Virginia Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:  How will the change in Accounts Payable be shown on the statement of cash flows?
A)as an addition to Net Income 
B)as a deduction from Net Income 
C)as a deduction from investing cash flows 
D)as an addition to operating cash flows

Quizplus · Accepted Answer

The change in Accounts Payable will be shown as a deduction from Net Income on the statement of cash flows under the indirect method. This is because an increase in Accounts Payable indicates that the company has received goods or services on credit and has not yet paid for them, which is a form of financing. As such, it is considered a non-cash expense that needs to be added back to Net Income to arrive at the cash flows from operating activities. Therefore, the correct option is B, as it shows the change in Accounts Payable as a deduction from Net Income.

Virginia Company Uses the Indirect Method to Prepare the Statement