Krech Corporation's comparative balance sheet appears below: The company's net income (loss)for the year was ($3,000)and its cash dividends were $3,000.It did not sell or retire any property,plant,and equipment during the year.The company uses the indirect method to determine the net cash provided by operating activities. Which of the following is correct regarding the operating activities section of the statement of cash flows?
A)The change in Accounts Receivable will be subtracted from net income;The change in Inventory will be added to net income
B)The change in Accounts Receivable will be added to net income;The change in Inventory will be subtracted from net income
C)The change in Accounts Receivable will be added to net income;The change in Inventory will be added to net income
D)The change in Accounts Receivable will be subtracted from net income;The change in Inventory will be subtracted from net income

Question

Krech Corporation's comparative balance sheet appears below:  The company's net income (loss)for the year was ($3,000)and its cash dividends were $3,000.It did not sell or retire any property,plant,and equipment during the year.The company uses the indirect method to determine the net cash provided by operating activities. Which of the following is correct regarding the operating activities section of the statement of cash flows?
A)The change in Accounts Receivable will be subtracted from net income;The change in Inventory will be added to net income 
B)The change in Accounts Receivable will be added to net income;The change in Inventory will be subtracted from net income 
C)The change in Accounts Receivable will be added to net income;The change in Inventory will be added to net income 
D)The change in Accounts Receivable will be subtracted from net income;The change in Inventory will be subtracted from net income

Quizplus · Accepted Answer

For the indirect method of determining net cash provided by operating activities, changes in current assets are shown opposite to their normal balance in the income statement. This means that an increase in Accounts Receivable would be subtracted from net income, while a decrease in Accounts Receivable would be added to net income. Similarly, a decrease in Inventory would be subtracted from net income, while an increase in Inventory would be added to net income. Therefore, the correct option is B.

Krech Corporation's Comparative Balance Sheet Appears Below: the Company's