In Calculating Cash Flows from Operating Activities Using the Indirect

question 117

Multiple Choice

In calculating cash flows from operating activities using the indirect method, an increase in accounts payable is

• A) added to net income.
• B) deducted from net income.
• C) ignored because it does not affect cash.
• D) not reported on a statement of cash flows.

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Definitions:

Allowance Account

A contra asset account that reduces the gross amount of receivables to reflect a more accurate value of expected collections.

Liability Account

An accounting record tracking obligations or debts that a company owes to others.

Credit Balance

Credit Balance refers to the amount of money that a company or individual has in their account that can credit against future purchases or borrowings.