When preparing a statement of cash flows on the indirect method, each of the following should be classified as an operating activity cash flow except:
A) An increase in accounts receivable.
B) A decrease in accounts payable.
C) A gain from disposal of a long-term asset
D) An increase in prepaid expenses.
E) A decrease in accrued expenses payable.

Question

Quizplus · Accepted Answer

An increase in accounts receivable (A), an increase in prepaid expenses (D), and a decrease in accrued expenses payable (E) all relate to operating activities and should be classified as such in the statement of cash flows. However, a gain from disposal of a long-term asset (C) is a non-operating activity and should be classified as either an investing or financing activity depending on the nature of the disposal. A decrease in accounts payable (B) also relates to operating activities but is not part of the question which asks specifically for items classified as operating activities.

When Preparing a Statement of Cash Flows on the Indirect