Question

Indicate whether each of the following would be added to or deducted from net income in determining net cash flow from operating activities by the indirect method:

a. Decrease in inventory
b. Increase in accounts receivable
c. Increase in accounts payable
d. Loss on retirement of long-term debt
e. Depreciation of fixed assets
f. Decrease in notes receivable due in 60 days from customers
g. Increase in salaries payable
h. Decrease in prepaid expenses
i. Amortization of patent
j. Increase in notes payable due in 120 days to vendors
k. Gain on disposal of fixed assets

Answer 1

a. Decrease in inventory- Added to net income
b. Increase in accounts receivable- Subtract from net income
c. Increase in accounts payable- Added to net income
d. Loss on retirement of long-term debt- Added to net income
e. Depreciation of fixed assets- Added to net income
f. Decrease in notes receivable due in 60 days from customers- Added to net income
g. Increase in salaries payable- Added to net income
h. Decrease in prepaid expenses- Added to net income
i. Amortization of patent- Added to net income
j. Increase in notes payable due in 120 days to vendors- Added to net income
k. Gain on disposal of fixed assets- Subtracted from net income