Consider the following items:

(a) Decrease in accounts receivable (f) Gain on the sale of equipment
(b) Issuance of common stock (g) Depreciation expense
(c) Increase in interest receivable (h) Payment of dividends
(d) Purchase of land (i) Decrease in utilities payable
(e) Decrease in accounts payable (j) Increase in inventory
How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows?

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jepessoa jepessoa · Answer 1 · 2020-10-04T02:35:14+02:00

Answer:

(c) Increase in interest receivable, SUBTRACTED FROM NET INCOME, IT DECREASES CASH FLOWS FROM OPERATING ACTIVITIES

(e) Decrease in accounts payable, SUBTRACTED FROM NET INCOME, IT DECREASES CASH FLOWS FROM OPERATING ACTIVITIES

(f) Gain on the sale of equipment , SUBTRACTED FROM NET INCOME, IT DECREASES CASH FLOWS FROM OPERATING ACTIVITIES

(i) Decrease in utilities payable , SUBTRACTED FROM NET INCOME, IT DECREASES CASH FLOWS FROM OPERATING ACTIVITIES

Explanation:

(a) Decrease in accounts receivable, ADDED TO NET INCOME, IT INCREASES CASH FLOWS FROM OPERATING ACTIVITIES

(b) Issuance of common stock, NOT INCLUDED IN CASH FLOWS FROM OPERATING ACTIVITIES, IT IS A FINANCIAL ACTIVITY

(d) Purchase of land, NOT INCLUDED IN CASH FLOWS FROM OPERATING ACTIVITIES, IT IS AN INVESTING ACTIVITY

(g) Depreciation expense , ADDED TO NET INCOME, IT INCREASES CASH FLOWS FROM OPERATING ACTIVITIES

(h) Payment of dividends, NOT INCLUDED IN CASH FLOWS FROM OPERATING ACTIVITIES, IT IS A FINANCIAL ACTIVITY

(j) Increase in inventory, SUBTRACTED FROM NET INCOME, IT DECREASES CASH FLOWS FROM OPERATING ACTIVITIES