Rick Corporation's Accounts Receivable increased by $25,000 during the year.What is the adjustment to the cash flow statement when it is prepared by the indirect method?
A)Subtract the increase from the net income in operating activities section.
B)Add the increase to the net income in operating activities section.
C)Add the increase in the investing activities section.
D)Subtract the increase in the financing activities section.

Question

Quizplus · Accepted Answer

When using the indirect method, an increase in accounts receivable is subtracted from net income in the operating activities section. This adjustment is made to account for the fact that the increase in accounts receivable represents cash that has not yet been received, and therefore should not be included in the calculation of net income.

Rick Corporation's Accounts Receivable Increased by $25,000 During the Year