Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet: How will the change in Accounts payable be shown on the statement of cash flows?

Question

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:  How will the change in Accounts payable be shown on the statement of cash flows?

Quizplus · Accepted Answer

The change in accounts payable will affect operating activities and will be shown as a negative adjustment in the operating section of the statement of cash flows using the indirect method. This is because an increase in accounts payable means that the company has received goods and services without having to pay for them immediately, resulting in a decrease in cash outflow. Therefore, the change in accounts payable will be subtracted from net income to arrive at the operating cash flow. Option B correctly identifies this by subtracting negative cash flow from operating activities.

Avatar Company Uses the Indirect Method to Prepare the Statement