Question

Under the indirect method for preparing the statement of cash flows, decreases in current assets are _____ net income in the cash flows from operating activities section. a.subtracted from b.not used in calculating c.cannot tell from the information given d.added to

Answer 1

Answer:

Option D Decrease in current assets are added to net income in the cash flows from operating activities section.

Explanation:

The reason is that the decrease in current assets means that the cash has an inward flow towards the company. Lets take an example of trade receiveables which is standing at $15,000. Suppose now the trade receivables has decreased to $10,000 which means that $5000 of trade receiveables has been received in cash which is a cash inflow and cash inflow in the statement of cash flow is always added with positive sign.