During 2017, Danish Corp., which uses the allowance method of accounting for doubtful accounts, recorded bad debts expense of $10,000.As well, the corporation wrote off uncollectible accounts receivable of $4,000.As a result of these transactions, their cash flows from operating activities would be calculated (indirect method)by adjusting net income with a
A)$10,000 increase.
B)$4,000 increase.
C)$6,000 increase.
D)$6,000 decrease.

Question

Quizplus · Accepted Answer

Under the indirect method, net income is adjusted for non-cash expenses and changes in working capital. The $10,000 bad debts expense is a non-cash expense, so it is added back to net income to calculate cash flows from operating activities.