The following items were reported on the balance sheets and income statement for Flying Mullet Company: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2017 & \$ 85,000 \
\text { Accounts receivable, December } 31,2018 & 98,000 \
\text { Sales-2018 } & 750,000
\end{array}$How would the change in accounts receivable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

A)As an addition to sales
B)As a deduction from sales
C)As an addition to net income
D)As a deduction from net income

Question

The following items were reported on the balance sheets and income statement for Flying Mullet Company: $\begin{array}{lr}
\text { Accounts receivable, December } 31,2017 & \$ 85,000 \
\text { Accounts receivable, December } 31,2018 & 98,000 \
\text { Sales-2018 } & 750,000
\end{array}$How would the change in accounts receivable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

A)As an addition to sales
B)As a deduction from sales
C)As an addition to net income
D)As a deduction from net income

Quizplus · Accepted Answer

Under the indirect method for the statement of cash flows, increases in accounts receivable from one period to the next are deducted from net income in the Operating Activities section. This is because the sales that increased accounts receivable did not result in an immediate cash inflow.

The Following Items Were Reported on the Balance Sheets and Income