If a company uses the indirect method to prepare the statement of cash flows, how will the adjustment to reflect the amount of cash payments to employees be presented on the statement?

Question

Quizplus · Accepted Answer

The adjustment to reflect the amount of cash payments to employees will be for the increase or decrease in wages payable for the period and will adjust net income in the operating activities section. This is because the indirect method starts with net income and adjusts for non-cash items, such as changes in accounts payable and receivable. Since employee wages are typically paid in cash, the adjustment to reflect the change in wages payable will be made to reconcile net income to the actual cash flows from operating activities.

If a Company Uses the Indirect Method to Prepare the Statement