For a firm using the indirect method,an increase in a deferred tax liability should be added back to net income to arrive at cash flow from operating activities.

Question

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An increase in a deferred tax liability represents a future tax liability that has not yet been paid in cash, and therefore it is a non-cash expense. Therefore, it should be added back to net income to arrive at cash flow from operating activities in the indirect method.

For a Firm Using the Indirect Method,an Increase in a Deferred