During 2016, the accounts payable balance of Andreas Corp.decreased.Which of the following statements is true?
A) This decrease indicates that Andreas paid less during the period than it recognized as expenses on the income statement.
B) This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C) This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method.
D) This decrease is considered only when the operating activities section of a statement of cash flows is prepared under the direct method.

Question

Quizplus · Accepted Answer

A decrease in accounts payable means that fewer payments were made to suppliers during the period than were recognized as expenses on the income statement. Therefore, this decrease should be deducted from net income in the operating activities section of a statement of cash flows prepared under the indirect method. Option A is incorrect because it implies that Andreas paid less than the expenses recognized, which is not necessarily true. Option B is incorrect because a decrease in accounts payable would be subtracted from net income, not added to it. Option D is incorrect because the method used to prepare the statement of cash flows (direct or indirect) does not affect how the change in accounts payable is treated.

During 2016, the Accounts Payable Balance of Andreas Corp