All of the following are additions to net income when preparing the statement of cash flows under the indirect method except:
A)losses on sales of long term assets.
B)a decrease in Accounts Payable.
C)a decrease in Prepaid Insurance.
D)a decrease in Accounts Receivable.

Question

Quizplus · Accepted Answer

A, C, and D are all adjustments that would add to net income under the indirect method. Losses on sales of long term assets are added back because they represent noncash expenses. Decreases in prepaid expenses and accounts receivable are added back because they indicate cash inflows that were not recognized in net income. However, a decrease in accounts payable represents a cash outflow, so it should be subtracted from net income when preparing the statement of cash flows.

All of the Following Are Additions to Net Income When