Wilson Co.uses the indirect method to determine its cash flow from operations.During the course of the year,Wilson's Accounts Receivable increased by $28,000 and its Accounts Payable decreased by $14,000.As a result of these two items,the net addition (or subtraction)to convert net income to cash flow from operations equals:
A)$14,000.
B)($14,000).
C)$42,000.
D)($42,000).

Question

Quizplus · Accepted Answer

Under the indirect method,decreases in current assets and increases in current liabilities are added to net income while increases in current assets and decreases in current liabilities are subtracted from net income to find cash flows from operations.Therefore,net income must be decreased by $42,000 (or increase in Accounts Receivable of $28,000 + decrease in Accounts Payable of $14,000)to convert that number to cash flows from operating activities.

Wilson Couses the Indirect Method to Determine Its Cash Flow from from Operations.During