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

Question

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

Quizplus · Accepted Answer

The change in Accounts Payable will be shown as a deduction from Net Income on the statement of cash flows. This is because Accounts Payable represents amounts owed to suppliers for purchases made on credit, and an increase in Accounts Payable means that the company has effectively used cash to pay down these amounts. Therefore, the change in Accounts Payable is subtracted from Net Income in the operating activities section of the statement of cash flows to arrive at the net cash provided by operating activities.

Virginia Company Uses the Indirect Method to Prepare the Statement