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Excerpts from Aultman Corporation's comparative balance sheet appear below: Ending Balance Beginning Balance Cash and cash...

Excerpts from Aultman Corporation's comparative balance sheet appear below:

Ending Balance Beginning Balance
Cash and cash equivalents $ 62,000 $ 29,000
Inventory $ 371,000 $ 345,000
Accounts payable $ 71,000 $ 73,000

Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

  • The change in Inventory is subtracted from net income; The change in Accounts Payable is subtracted from net income

  • The change in Inventory is subtracted from net income; The change in Accounts Payable is added to net income

  • The change in Inventory is added to net income; The change in Accounts Payable is added to net income

  • The change in Inventory is added to net income; The change in Accounts Payable is subtracted from net income

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Answer #1

Answer :- The correct answer is option A.

The change in inventory is subtracted from net income;The change in Accounts Payable is subtracted from net income.

Ending balance Beginning balance Change
Inventory   $371,000 $345,000 +$26,000
Accounts payable   $71,000   $73,000 - $2,000

So if the balance of an asset increases, cash flow from operation will decrease, if balance of an liability is decrease the cash flow from operation will decrease.

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