During 2008, Garber Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $25,000 and in addition it wrote off, as uncollectible, accounts receivable of $10,000. As a result of these transactions, net cash flows from operating activities would be calculated (indirect method) by adjusting net income with a
A) $25,000 increase.
B) $10,000 increase.
C) $15,000 increase.
D) $15,000 decrease.

Question

Quizplus · Accepted Answer

The provision for bad debt expense of $25,000 is a non-cash expense and would be added back to net income when calculating net cash flows from operating activities using the indirect method. The write-off of accounts receivable does not affect cash flow, as it is merely an adjustment between accounts receivable and the allowance for doubtful accounts.

During 2008, Garber Corporation, Which Uses the Allowance Method of Accounting