Georgia Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: How will the change in Accounts Receivable be shown on the statement of cash flows?

Question

Georgia Corp.uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet:  How will the change in Accounts Receivable be shown on the statement of cash flows?

Quizplus · Accepted Answer

The change in Accounts Receivable (which is an operating asset) will be shown as a subtraction from net income under the operating activities section of the statement of cash flows. This is because an increase in Accounts Receivable implies that revenues have been recognized on credit, leading to an increase in net income, but cash has not yet been received. The indirect method adjusts net income for all non-cash items (including the change in Accounts Receivable) to arrive at the operating cash flow.