Question

When computing the net cash provided by operating activities using the indirect approach on the statement of cash flows, which item below would NOT be added to net income? Depreciation. Loss on the sale of an asset. Decrease in accounts payable. Decrease in prepaid expenses.

Answer 1

The correct option is Decrease in accounts payable

Step-by-step explanation:

Operating activities under indirect method: It records all the changes in the working capital. The increase in current assets would decrease the cash balance, and the decrease in current assets would increase the cash balance

Whereas, The increase in current liabilities would increase the cash balance, and the decrease in current assets would decrease the cash balance

And, the depreciation, loss on sale of an asset, and decrease in prepaid expenses would be added in the net income as it reflects the inflow of cash.

But, decrease in accounts payable reflects outflow of cash which would be deducted from the net income.

Hence, The correct option is Decrease in accounts payable