Which of the following adjustments to net income is incorrect when using the indirect method for computing cash flows from operating activities?
A) Deduct depreciation expense from net income.
B) Add a decrease in inventory to net income.
C) Deduct an increase in prepaid expenses from net income.
D) Add an increase in accounts payable to net income.

Question

Quizplus · Accepted Answer

Depreciation expense is a non-cash charge and should be added back to net income, not deducted, when using the indirect method for computing cash flows from operating activities.

Which of the Following Adjustments to Net Income Is Incorrect