Under the indirect method,a decrease in accounts receivable is added to net income to arrive at net cash flows from operating activities.

Question

Quizplus · Accepted Answer

This statement is true. In the indirect method, changes in non-cash current assets such as accounts receivable are adjusted for to arrive at the net cash flows from operating activities. When accounts receivable decreases, it means that less cash was tied up in outstanding customer invoices, resulting in an increase in cash flow. Therefore, this increase is added back to net income to arrive at the final cash flow figure.

Under the Indirect Method,a Decrease in Accounts Receivable Is Added