When preparing the operating section of the statement of cash flows using the direct method, which...
When preparing the operating section of the statement of cash flows using the direct method, which of the following statements is true?
a. A decrease in accounts payable is subtracted from expenses.
b. An increase in accounts receivable is subtracted from sales.
c. Depreciation expense is added to cash flows.
d. Gains on sales of long-term assets are subtracted from cash flows.
Homework Answers
Answer : b. An increase in accounts receivable is subtracted from sales.
Working Notes:
a. A decrease in accounts payable is subtracted from expenses. - is added to Expenses in the operating section of cash flow using the direct method of cash flow statement.
b. An increase in accounts receivable is subtracted from sales. - is subtracted to sales in the operating section of cash flow using the direct method of cash flow statement.
c. Depreciation expense is added to cash flows. - is added to the operating section of cash flow using the indirect method of cash flow statement.
d. Gains on sales of long-term assets are subtracted from cash flows. - is subtracted to the operating section of cash flow using the indirect method of cash flow statement.
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