An increase in accounts receivable is subtracted from net income to determine cash provided/(used) by operating activities when using the indirect method.

Question

Quizplus · Accepted Answer

An increase in accounts receivable indicates that more sales were made on credit, hence cash was not received. This means that cash was tied up in the accounts receivable, so it needs to be subtracted from net income to determine the actual cash provided/(used) by operating activities.

An Increase in Accounts Receivable Is Subtracted from Net Income