The following items were reported on the balance sheets and income statement for Power Wash Company: How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows under the indirect method?

Question

The following items were reported on the balance sheets and income statement for Power Wash Company:  How would the change in accounts receivable be reported in the operating activities section of the statement of cash flows under the indirect method?

Quizplus · Accepted Answer

A change in accounts receivable is a result of credit sales made during the period. Since the indirect method starts with the net income and adjusts for non-cash items and changes in working capital, a decrease in accounts receivable (an increase in cash) needs to be deducted from net income to arrive at cash flow from operating activities. Therefore, the change in accounts receivable would be reported as a deduction from net income in the operating activities section of the statement of cash flows.

The Following Items Were Reported on the Balance Sheets and Income