When preparing the operating activities section of the statement of cash flows using the indirect method,a decrease in accounts receivable is subtracted from net income.To convert net income to cash flows from operating activities,a decrease in accounts receivable means that sales revenue on the income statement is less than the amount of cash collected from customers;therefore,the decrease should be added to net income.

Question

Quizplus · Accepted Answer

A decrease in accounts receivable indicates that cash collected from customers is more than the sales revenue reported, so it should be added to net income, not subtracted.

When Preparing the Operating Activities Section of the Statement of Cash