Excerpts from Harris Corporation's comparative balance sheet appear below: Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?
A)The change in Accounts Payable is added to net income;The change in Accrued Liabilities is subtracted from net income
B)The change in Accounts Payable is added to net income;The change in Accrued Liabilities is added to net income
C)The change in Accounts Payable is subtracted from net income;The change in Accrued Liabilities is added to net income
D)The change in Accounts Payable is subtracted from net income;The change in Accrued Liabilities is subtracted from net income

Question

Excerpts from Harris Corporation's comparative balance sheet appear below:  Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?
A)The change in Accounts Payable is added to net income;The change in Accrued Liabilities is subtracted from net income 
B)The change in Accounts Payable is added to net income;The change in Accrued Liabilities is added to net income 
C)The change in Accounts Payable is subtracted from net income;The change in Accrued Liabilities is added to net income 
D)The change in Accounts Payable is subtracted from net income;The change in Accrued Liabilities is subtracted from net income

Quizplus · Accepted Answer

The change in Accounts Payable is a cash inflow because it represents an increase in money owed to suppliers, and therefore should be subtracted from net income in the operating activities section. The change in Accrued Liabilities is a cash outflow, because it represents an increase in expenses that have been incurred but not yet paid for, and therefore should be added to net income in the operating activities section.

Excerpts from Harris Corporation's Comparative Balance Sheet Appear Below