Question

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?

Answer 1

Explanation: Under the indirect method of cash flow statement, we have the Operating section, which has the following deductions to get the value of cash used by operating activities.

The include:

1. Increase in Accounts receivable

2. Increase in Interest receivable

3. Increase in Inventory

4. Increase in prepaid expenses

5. Gain on sale of Investment

6. Decrease in accrued liabilities

7. Decrease in accounts payable

All the above listed points are deducted from the net cash flow under the operating section to arrive at the cash provided by.