Question

The following items were reported on the balance sheets and income statement for Bezos Corp.:

Accounts payable, December 31, 2017
$ 42,000
Accounts payable, December 31, 2018
48,000
Operating expenses
286,000
How would the change in accounts payable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

a.
As an addition to operating expenses

b.
As a deduction from operating expenses

c.
As an addition to net income

d.
As a deduction from net income

Answer 1

The increase in accounts payable for Bezos Corp. is reported as an addition to net income in the Operating Activities section of the statement of cash flows using the indirect method.

Step-by-step explanation:

The change in accounts payable for Bezos Corp. would be reported in the Operating Activities section of the statement of cash flows using the indirect method. Since accounts payable increased from $42,000 on December 31, 2017, to $48,000 on December 31, 2018, this indicates that not all expenses incurred were paid in cash during the year. In the indirect method, an increase in accounts payable should be added to net income to reconcile net income to net cash provided by operating activities.

Therefore, the correct way to report the change in accounts payable in the Operating Activities section of the statement of cash flows under the indirect method would be:a. As an addition to net income.