Enterprise Industries' Accounts Receivable decreased by $27,000 and its Accounts Payable decreased by $17,000. What is the net effect on cash from operations under the indirect method?

Question

Quizplus · Accepted Answer

Decrease in Accounts Receivable indicates that the company has collected more cash from its customers. Decrease in Accounts Payable indicates that the company has paid off some of its outstanding debts. Both these changes result in an increase in cash from operations. 
Net effect on cash from operations = decrease in A/R - decrease in A/P
= $27,000 - (-$17,000)
= $44,000
Since the question is asking for the net effect on cash, we take the sum of both these changes. Therefore, the correct answer is D, +$10,000.

Enterprise Industries' Accounts Receivable Decreased by $27,000 and Its Accounts