Question

Freemont Company's Accounts Receivable decreased by $4,000 and its Inventory decreased by $3,000 during the year. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method? a. The change in Accounts Receivable is added to net income; the change in Inventory is added to net income.b. The change in Accounts Receivable is subtracted from net income; the change in Inventory is added to net income.c. The change in Accounts Receivable is added to net income; the change in Inventory is subtracted from net income.d. The change in Accounts Receivable is subtracted from net income; the change in Inventory is subtracted from net income.

Answer 1

a. The change in Accounts Receivable is added to net income; the change in Inventory is added to net income.

Step-by-step explanation:

Operating activities: It includes those transactions which affect the working capital . The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added to the net income

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income