California Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet:
$\begin{array}{c}
\text { California Corp.}\
\text { Comparative Balance Sheet}\
\text { December 31,2018and 2017}\\begin{array}{|l|r|r|r|}
\hline& 2018 & 2017 & \text { Increase/(Decrease) } \
\hline\text { Accounts Payable } & \$ 8,000 & \$ 9,000 & \$(1,000 )\
\hline \text { Accrued Liabilities } & 3,000 & 1,500 & 1,500 \
\hline \text { Long-term Notes Payable } & 56,000 & \underline{60,000} & \underline{(4,000)} \
\hline \text { Total Liabilities } & \$ 67,000 & \$ 70,500 & \$(3,500) \
\hline
\end{array}\end{array}$ The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to net income.

Question

California Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet:
 $\begin{array}{c}
\text { California Corp.}\
\text { Comparative Balance Sheet}\
\text { December 31,2018and 2017}\\begin{array}{|l|r|r|r|}
\hline& 2018 & 2017 & \text { Increase/(Decrease) } \
\hline\text { Accounts Payable } & \$ 8,000 & \$ 9,000 & \$(1,000 )\
\hline \text { Accrued Liabilities } & 3,000 & 1,500 & 1,500 \
\hline \text { Long-term Notes Payable } & 56,000 & \underline{60,000} & \underline{(4,000)} \
\hline \text { Total Liabilities } & \$ 67,000 & \$ 70,500 & \$(3,500) \
\hline
\end{array}\end{array}$ The change in Accrued Liabilities is shown as a negative cash flow in the adjustments to net income.

Quizplus · Accepted Answer

The increase in Accrued Liabilities would be shown as a positive adjustment to net income in the cash flow from operating activities section because it represents an increase in liabilities, which means that expenses were incurred but not paid in cash, thus not reducing the cash during the period.

California Corp The Change in Accrued Liabilities Is Shown as a Negative