Increases in receivables and prepaid expenses are added to net income to determine cash provided/(used) by operating activities when using the indirect method.

Question

Quizplus · Accepted Answer

Increases in receivables and prepaid expenses are subtracted from net income to determine cash provided/(used) by operating activities when using the indirect method. This is because an increase in these accounts means cash was not yet received or paid for the corresponding revenue or expense recognized in the income statement, respectively.

Increases in Receivables and Prepaid Expenses Are Added to Net