Question

What adjustments would need to be made in the Operating Section of the statement of cash flows prepared under the indirect method to account for the changes in the Accounts Payable and Accrued Expenses account balances for Google?

Answer 1

Explanation:

You will have to compare the Accounts payable of the current and previous year, and check the diference.

If the current year Account Payable is higher then the previous year, this means Google didn't pay as much, so it "save" cash for that diference so the diference will be positive.

If the opposite ocours, then Google pay more than previous year, so the diference will be posted as negatinve in the cash flow statment.

Accrued Expenses for this account, when doing the comparrison, if current is higher this means Google didn't pay as much expenses as it should be, so it save cash, the diference will be posted as positive.

If the actual is smaller, then Google pay more and the diference is posted as negtive.

Resuming, compare current with previous for each account,

• when current is higher then adjustment is positive (save cash)

• when previous is higher then adjustment is negative(use cash)