Final answer:
A decrease in deferred tax liabilities in the statement of cash flows using the indirect method indicates a cash outflow and is subtracted from net income to reconcile it to net cash provided by operating activities.
Step-by-step explanation:
In the statement of cash flows, when using the indirect method to determine cash flows from operating activities, a decrease in deferred tax liabilities is considered an adjustment to reconcile net income to net cash provided by operating activities. Since deferred tax liabilities represent an obligation that is deferred to future periods, a decrease implies that some of that liability has been settled.
Therefore, it reflects a cash outflow and is subtracted from net income. This adjustment is needed because the indirect method starts with net income, which is a non-cash accounting figure, and then adjusts for changes in balance sheet items that affected reported net income but did not involve cash.