Which of the following statements is correct with respect to the determination of cash flows from operating activities?
A)A decrease in inventory is subtracted from net income.
B)An increase in accounts payable is subtracted from net income.
C)An increase in inventory is subtracted from net income.
D)A decrease in accounts payable is added to net income.

Question

Quizplus · Accepted Answer

An increase in inventory is considered a use of cash in operating activities because it represents cash tied up in inventory that is not available for other uses. Therefore, it is subtracted from net income in the indirect method of calculating cash flows from operating activities.

Which of the Following Statements Is Correct with Respect to the Determination