During 2018, Oldham Corporation, which uses the allowance method of accounting f

Question

During 2018, Oldham Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $45,000 and in addition it wrote off, as uncollectible, accounts receivable of $10,000. As a result of these transactions, net cash flows from operating activities would be calculated (indirect method) by adjusting net income with a

a.   $45,000 increase.

b.   $10,000 increase.

c.   $35,000 increase.

d.   $35,000 decrease.

Show (or explain) your calculation.

Explanation / Answer

While calculating cash flows from operations under indirect method, all the non-cash expenses are added back to net income to arrive at the cash flows. Reason is non-cash expenses will not have any real cash outflows, so provision for bad debt expense should be added back.

Hence, correct option is (a) $45,000 increase.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.