An increase in accounts payable is added to net income when determining cash flows from operating activities.

Question

Quizplus · Accepted Answer

An increase in accounts payable represents money that a company has not yet paid to its suppliers or creditors, effectively acting as a source of cash. Therefore, it is added back to net income in the calculation of cash flows from operating activities under the indirect method, as it indicates that less cash was paid out than the expenses recognized.

An Increase in Accounts Payable Is Added to Net Income