Assume a company uses the indirect method to prepare its statement of cash flows.If the Supplies account increases and Salaries and Wages Payable decreases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?
A) Both are added to net income.
B) The change in Salaries and Wages Payable is added to net income; the change in Supplies is subtracted from net income.
C) Both are subtracted from net income.
D) The change in Supplies is added to net income; the change in Salaries and Wages Payable is subtracted from net income.

Question

Quizplus · Accepted Answer

An increase in Supplies indicates a cash outflow, so it is subtracted from net income. A decrease in Salaries and Wages Payable indicates a cash outflow, so it is also subtracted from net income.

Assume a Company Uses the Indirect Method to Prepare Its