Brighton,Inc.uses the indirect method to determine its cash flow from operations.During the course of the year,Brighton,Inc.'s Accounts Receivable increased by $10,000 and its Accounts Payable decreased by $5,000.As a result of these two items,the net addition (or subtraction)to convert net income to cash flow from operations equals:
A) $5,000.
B) ($5,000).
C) $15,000.
D) ($15,000).

Question

Quizplus · Accepted Answer

An increase in Accounts Receivable indicates that not all sales were collected in cash, so $10,000 is subtracted from net income. A decrease in Accounts Payable means that more cash was used to pay off liabilities, so $5,000 is also subtracted. Together, these adjustments result in a total subtraction of $15,000 from net income to calculate cash flow from operations.