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Wilson Co. uses the indirect method to determine its cash flow from operations. During the course...

Wilson Co. uses the indirect method to determine its cash flow from operations. During the course of the year, Wilson’s Accounts Receivable increased by $28,000 and its Accounts Payable decreased by $14,000. As a result of these two items, the net addition (or subtraction) to convert net income to cash flow from operations equals:

Multiple Choice

  • $42,000.

  • ($42,000).

  • $14,000.

  • ($14,000).

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Answer #1

Increase in Accounts Receivable means blockage of funds i.e considered as an outflow.

Decrease in Accounts Payable is considered payment of cash i.e also an outflow.

The net effect of these two items, the net addition (or subtraction) to convert net income to cash flow from operations equals:\

($42,000)

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