The following items were reported on the balance sheets and income statement for Bezos Corp.: $\begin{array}{lr}
\text { Accounts payable, December } 31,2017 & \$ 42,000 \
\text { Accounts payable, December } 31,2018 & 48,000 \
\text { Operating expenses } & 286,000
\end{array}$How would the change in accounts payable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

A)As an addition to operating expenses
B)As a deduction from operating expenses
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 Bezos Corp.: $\begin{array}{lr}
\text { Accounts payable, December } 31,2017 & \$ 42,000 \
\text { Accounts payable, December } 31,2018 & 48,000 \
\text { Operating expenses } & 286,000
\end{array}$How would the change in accounts payable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

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

Quizplus · Accepted Answer

The increase in accounts payable from $42,000 to $48,000 indicates that not all of the operating expenses were paid in cash during the year. Under the indirect method for the statement of cash flows, increases in accounts payable are added to net income in the Operating Activities section to adjust for the fact that these expenses did not use cash.

The Following Items Were Reported on the Balance Sheets and Income