Question

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?
A. a decrease in accounts payable
B. dividends paid on common stock
C. an increase in accrued expenses
D. a gain on the sale of land

Answer 1

Answer:

C. an increase in accrued expenses

Explanation:

Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.  

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income and the loss on the sale of assets is added whereas the gain on sale of assets is deducted