During the year the balance in the accrued liabilities account increased by $12,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:
A) deduct the $12,000 from the operating expenses on the income statement.
B) add the $12,000 to the operating expenses on the income statement.
C) deduct the $12,000 from the cost of goods sold reported on the income statement.
D) add the $12,000 to the cost of goods sold reported on the income statement.

Question

Quizplus · Accepted Answer

Accrued liabilities represent expenses that have been incurred but not yet paid for, therefore they need to be deducted from the operating expenses on the income statement to reflect cash expenses. Therefore, option A is the correct choice.

During the Year the Balance in the Accrued Liabilities Account