In determining cash flows from operations under the indirect method, the adjustments to convert net income to cash flow from operations generally involve ____ the amount by which a revenue exceeds the related cash receipt for the period (such as equity method earnings exceeding dividends).
A)adding
B)subtracting
C)multiplying
D)dividing
E)cannot be determined from the information provided

Question

Quizplus · Accepted Answer

The adjustments involved in converting net income to cash flow from operations under the indirect method generally require subtracting the amount by which a revenue exceeds the related cash receipt for the period. This is because revenues are recognized when earned, while cash may be received before or after the revenue is recognized. Thus, to convert net income to cash flow from operations, the excess revenue recognized in the income statement needs to be subtracted to arrive at the actual cash received.

In Determining Cash Flows from Operations Under the Indirect Method