When the direct method is used to determine the net cash flow from operating activities,the following adjustments must be made to income tax expense to determine total income tax payments:
A)add all changes in income taxes and income taxes payable.
B)add decreases in income taxes payable and subtract increases in income taxes payable.
C)add increases in income taxes payable and subtract decreases in income taxes payable.
D)subtract all changes in income taxes payable.

Question

Quizplus · Accepted Answer

B) When using the direct method, to determine total income tax payments, decreases in income taxes payable are added (because they represent payments that reduce the liability) and increases in income taxes payable are subtracted (because they represent additional amounts owed but not yet paid, thus not part of the cash flow).

When the Direct Method Is Used to Determine the Net