Brandon, Inc.had a $1,000 decrease in accounts receivable during the year.Which of the following will appear on the statement of cash flows prepared using the indirect method?
A)Add $1,000 to net income in order to arrive at net cash provided by operating activities.
B)Deduct $1,000 from net income in order to arrive at net cash provided by operating activities.
C)Deduct $1,000 to arrive at net cash flows from investing activities.
D)Do not include the $1,000 in the statement of cash flows but show it in an accompanying schedule of non-cash transactions.

Question

Quizplus · Accepted Answer

When using the indirect method for the statement of cash flows, a decrease in accounts receivable is added back to net income to calculate net cash provided by operating activities. This is because the decrease in accounts receivable indicates that more cash has been collected from customers than recognized as revenue, increasing cash flows.