Avatar Company uses the indirect method to prepare the cash flow statement.Please refer to the following section of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | }
\hline &{ \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 6 } } &{ \text { Increase/decrease } } \
\hline \text { Cash } & \$ 33000 & \$ 18000 & \$ 15000 \
\hline \text { Accounts receivable } & 22000 & 35000 & ( 13000 ) \
\hline \text { Inventory } & 170000 & 115000 & 55000 \
\hline \text { Total assets } & \$ 225000 & \$ 168000 & \$ 57000 \
\hline
\end{array}$$
The change in accounts receivable will be shown as a positive cash flow in the adjustments to Profit.

Question

Avatar Company uses the indirect method to prepare the cash flow statement.Please refer to the following section of the comparative balance sheet:
 $$\begin{array} { | l | r | r | r | } 
\hline &{ \mathbf { 2 0 1 7 } } &  { \mathbf { 2 0 1 6 } } &{ \text { Increase/decrease } } \
\hline \text { Cash } & \$ 33000 & \$ 18000 & \$ 15000 \
\hline \text { Accounts receivable } & 22000 & 35000 & ( 13000 ) \
\hline \text { Inventory } & 170000 & 115000 & 55000 \
\hline \text { Total assets } & \$ 225000 & \$ 168000 & \$ 57000 \
\hline
\end{array}$$ 
The change in accounts receivable will be shown as a positive cash flow in the adjustments to Profit.

Quizplus · Accepted Answer

According to the indirect method, if accounts receivable decreases, it means that the company has collected more cash than the revenues recognized in that period. Therefore, the change in accounts receivable will be shown as a positive adjustment to net income in the cash flow statement.

Avatar Company Uses the Indirect Method to Prepare the Cash