On a statement of cash flows using the indirect format,an increase in prepaid insurance is:

Question

Quizplus · Accepted Answer

An increase in prepaid insurance is a non-cash expense and is thus added back to net income in the operating activities section. This is because the increase represents a use of cash when the insurance was originally purchased but does not represent an outflow of cash during the period for which the statement is being prepared. Therefore, the increase in prepaid insurance is deducted from net income to arrive at cash flow from operating activities.

On a Statement of Cash Flows Using the Indirect Format,an