Virginia Company uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: $\begin{array}{c}\text { Virginia Company}\
\text { Comparative Balance Sheet}\
\text { December 31,2018 and 2017}\
\begin{array}{|l|c|c|c|}
\hline & 2018& 2017 & \text { Increase/(Decrease) } \
\hline \text { Accounts Payable } & \$ 4,000 & \$ 6,000 & \$(2,000) \
\hline \text { Accrued Liabilities } & 2,000 & 1,000 & 1,000 \
\hline \text { Long-term Notes Payable } & 84,000 & \$90,000& (6,000) \
\hline \text { Total Liabilities } & \$ 90,000 & \$ 97,000 & \$(7,000)\
\hline
\end{array}\end{array}$ How will the change in Accounts Payable be shown on the statement of cash flows?

Question

Quizplus · Accepted Answer

The change in Accounts Payable will be shown as a deduction from Net Income on the statement of cash flows under the operating activities section using the indirect method. As accounts payable is a liability, an increase in accounts payable means that the company has received goods or services for which it has not yet paid. This increase must be subtracted from net income to adjust for the non-cash expenses and to calculate the actual cash flows from operating activities.

Virginia Company Uses the Indirect Method to Prepare the Statement