When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment for an increase in the Accounts Receivable balance?
A)Add the increase to net income
B)Add the increase to cash collections from customers
C)Deduct the increase from net income
D)Add the increase to cash payments to suppliers

Question

Quizplus · Accepted Answer

An increase in the Accounts Receivable balance indicates that sales have been made but the cash has not yet been received. Therefore, this increase needs to be deducted from net income because it represents revenue that has been earned but has not yet resulted in cash inflow.

When Using the Indirect Method to Complete the Cash Flows