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. Increase in prepaid expenses b. Amortization of patents c. Increase in salaries payable d. Gain on sale of fixed assets e. Decrease in accounts receivable f. Increase in notes receivable due in 60 days g. Amortization of discount on bonds payable h. Decrease in inventory i. Depreciation of fixed assets j. Loss on retirement of long-term debt k. Decrease in accounts payable l. Increase in notes payable due in 30 days m. Increase in income taxes payable

Answer 1

Step-by-step explanation:

Basically there are three types of activities:

1. Operating activities: It includes those transactions which affect the working capital, and it records transactions of cash receipts and cash payments.

2. Investing activities: It records those activities which include purchase and sale of the fixed assets

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance.

The items would be added or deducted is shown below:

a. Increase in prepaid expenses - deducted

b. Amortization of patents - added

c. Increase in salaries payable - added

d. Gain on sale of fixed assets - deducted

e. Decrease in accounts receivable - added

f. Increase in notes receivable due in 60 days - deducted

g. Amortization of discount on bonds payable - deducted

h. Decrease in inventory - added

i. Depreciation of fixed assets - added

j. Loss on retirement of long-term debt - added

k. Decrease in accounts payable - deducted

l. Increase in notes payable due in 30 days - added

m. Increase in income taxes payable - added