The comparative balance sheets for Flagler Co.for 2018 and 2017 indicate that accounts receivable decreased during 2018.Flagler uses the indirect method of preparing the Operating Activities section of its statement of cash flows.How will the decrease in accounts receivable be reported on the statement of cash flows?
A)It will be included in the amount of cash and cash equivalents at the end of 2018.
B)It will be deducted from net income in the Operating Activities section.
C)It will be added to net income in the Operating Activities section.
D)It will be reported as a cash outflow in the Investing Activities section.

Question

Quizplus · Accepted Answer

The decrease in accounts receivable indicates that less cash was received from customers during the year. However, this is not reflected in net income as it is a non-cash item. Therefore, it must be added back to net income in the Operating Activities section using the indirect method. This is because the decrease in accounts receivable represents an increase in cash that was not included in net income.

The Comparative Balance Sheets for Flagler Co