When using the indirect method,how is an increase in accounts receivable during the year shown on the statement of cash flows?
A)As an operating activity
B)As an investing activity
C)As a financing activity
D)As a noncash investing and financing activity

Question

Quizplus · Accepted Answer

An increase in accounts receivable during the year suggests that the company is extending credit to customers and has not yet received payment for those sales. This represents an operating activity, as it is a normal part of the company's day-to-day operations. The indirect method starts with net income and adjusts for non-cash items, such as changes in accounts receivable, to arrive at cash flows from operating activities. Therefore, an increase in accounts receivable would be shown as a negative adjustment to net income, which reduces the overall amount of operating cash flows.

When Using the Indirect Method,how Is an Increase in Accounts