Using the Indirect Method, Decreases in Current Assets and Increases

question 15

Multiple Choice

Using the indirect method, decreases in current assets and increases in current liabilities are both added to net income, whereas increases in current assets and decreases in current liabilities are both subtracted from net income to convert it to net cash flow. Noncash expenses such as depreciation are added back to net income.
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Cash flow } \\\text { from } \\\text { operating } \\\text { activities }\end{array} & \begin{array} { r } \text { Net } + \\\text { Income }\end{array} & \text { Depreciation- } & \begin{array} { r } \text { Change } + \\\text { in } \\\text { Act/Rec }\end{array} & \begin{array} { c } \text { Change in - } \\\text { inventory }\end{array} & \begin{array} { r } \text { Change in } \\\text { Act/Payables }\end{array} \\\hline \$ 22,500 & \$ 20,000 & \$ 10,000 & \$ 6,500 & \$ 7,000 & \$ 8,000 \\\hline\end{array}$$
-Which of the following adjusting journal entries would change the Net Cash Flows from Operating Activities line of the statement of cash flows?

• A)Recording bad debts expense.
• B)Recording depreciation.
• C)All of the answers are acceptable.
• D)None of the answers are acceptable.

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Definitions:

Humid Climates

Climates characterized by high levels of humidity and precipitation, commonly found near the equator and in coastal regions.

Food Web

A complex network of interrelated food chains in an ecological community, showcasing the various paths through which energy flows from one organism to another.

Trophic Level

The position an organism occupies in a food chain, categorized by how it obtains energy; primary producers form the base, followed by various levels of consumers.

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