How should the changes in current accounts be treated in computing cash flows from operating activities using the indirect method?

Question

Quizplus · Accepted Answer

When using the indirect method to compute cash flows from operating activities, increases in current assets (such as accounts receivables, inventory, etc.) are expected to decrease cash inflows and must be subtracted from net income. Conversely, increases in current liabilities (such as accounts payable and accrued expenses) are expected to increase cash inflows and must be added to net income. Therefore, the correct treatment is to subtract increases in all current assets from net income and add increases in all current liabilities.

How Should the Changes in Current Accounts Be Treated in Computing