Final answer:
The change in accounts receivable is reported as a deduction from net income in the Operating Activities section of the statement of cash flows under the indirect method if accounts receivable increases, indicating more credit sales than cash collected. Conversely, it's reported as an addition to net income if accounts receivable decreases, signifying more cash collection than credit sales.
Step-by-step explanation:
The change in accounts receivable would be reported in the Operating Activities section of the statement of cash flows under the indirect method. If accounts receivable increase during a period, it means that the company has sold more on credit than it has collected in cash from customers. This increase is considered a use of cash (since we sold goods without receiving cash) and is, therefore, deducted from the net income in the reconciliation from net income to net cash provided by operating activities.
If accounts receivable decrease during the period, this means the company has collected more cash from customers than the sales made on credit. This decrease represents a source of cash and is therefore added to net income in the reconciliation. Consequently, the change in accounts receivable is either added or deducted in the statement of cash flows, depending on whether that change represents an increase or a decrease in cash flow.