Which of the following statements is true when using the indirect method of preparing the operating activities section of the statement of cash flows?
A) Inventory decreases are subtracted from net income.
B) Inventory increases are subtracted from net income.
C) Inventory increases are added to net income.
D) None of the above.

Question

Quizplus · Accepted Answer

When using the indirect method, inventory increases are subtracted from net income. This is because an increase in inventory indicates that cash has been used to purchase additional inventory, reducing the amount of available cash for other operating activities. Conversely, a decrease in inventory indicates that inventory has been sold, increasing cash flow from operating activities.

Which of the Following Statements Is True When Using the Indirect