Question

Assume the indirect method is used to compute cash flows from operations. For each item listed below, indicate the effect on net income in arriving at cash flows from operations by selecting one of the following code.
Code
Cash Flows from Operating Activities
Add to Net Income A
Deduct from Net Income D

1. A decrease in accounts receivable
2. Increase in inventory
3. Increase in prepaid expenses
4. A decrease in accounts payable
5. Decrease in accrued liabilities
6. Increase in income taxes payable
7. Depreciation expense

Answer 1

Answer:

1. increase in accounts receivable            Deduct from net income  

2. increase in inventory                            Deduct from net income  

3. decrease in prepaid expenses           Added to net income  

4. Decrease in accounts payable           Deduct from net income  

5. increase in accrued liabilities           Added to net income  

6. increase in income taxes payable  Added to net income  

7. Depreciation expense                          Added to net income  

8. loss on sale of investment                  Added to net income  

9. Gain on disposal of equipment         Deduct from net income  

10. Amortization expense                         Added to Net income

Explanation: