TLR Productions' Accounts Receivable increased by $44,000 and its Accounts Payable increased by $29,000. What is the net effect on cash from operations under the indirect method?

Question

Quizplus · Accepted Answer

Under the indirect method, an increase in accounts receivable is subtracted from net income as it indicates that sales were made but payment has not been received yet, leading to a decrease in cash. Similarly, an increase in accounts payable is added back to net income as it indicates that expenses were incurred but payment has not been made yet, leading to an increase in cash. Therefore, the net effect on cash from operations is a decrease of $15,000 ($44,000 - $29,000).

TLR Productions' Accounts Receivable Increased by $44,000 and Its Accounts