Which of the following is the correct treatment within the operating activities

Question

Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method? The change in Accounts Receivable Is added to net Income; The change in Inventory Is added to net Income The change in Accounts Receivable is added to net income; The change in Inventory is subtracted from net income The change in Accounts Receivable is subtracted from net income; The change in Inventory is subtracted from net income The change in Accounts Receivable is subtracted from net income; The change in Inventory is added to net income

Explanation / Answer

In the indirect method of Cash Flow Statement, increase in Current assets is deducted from and decrease in current assets is added net income. In this case, there is a decrease in Accounts Receivable from $ 28000 to $ 24000 and also decrease in Inventory from $ 68000 to $ 65000.

So, the decrease in balances has to be added in Net Income.

Correct option is OPTION A.

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