Under the indirect method, which of the following is NOT a proper adjustment to net income under operating activities?

Question

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Under the indirect method of preparing the cash flow statement, adjustments to net income under operating activities involve changes in current assets and current liabilities, as well as non-cash expenses and losses or gains on sales of assets. Adding a decrease in supplies (A), subtracting an increase in prepaid insurance (C), and adding a loss on the sale of machinery (D) are all proper adjustments. Subtracting an increase in interest payable (B) is not a proper adjustment under operating activities because it relates to financing activities, not operating activities. Interest payable is a liability that, when it increases, actually indicates that not all interest expense has been paid in cash, which would not be subtracted from net income in the operating section but dealt with in the financing section.

Under the Indirect Method, Which of the Following Is NOT