Final answer:
In the operating section of the statement of cash flows prepared under the indirect method, adjustments need to be made to account for changes in the Accounts Receivable and Inventory account balances.
When Accounts Receivable increases, it is treated as a subtraction from net income, while a decrease is treated as an addition. When Inventory decreases, it is treated as an addition to net income, and an increase is treated as a subtraction.
Step-by-step explanation:
In the operating section of the statement of cash flows prepared under the indirect method, adjustments would need to be made to account for changes in the Accounts Receivable and Inventory account balances for Green Mountain Coffee Roasters.
For the Accounts Receivable, if the balance increased from 363,771 to 467,976, it means that customers owe the company more money. This increase is treated as a subtraction from net income in the operating section because it signifies that the company recorded sales but did not receive the cash yet. On the other hand, if the balance decreased, it would be treated as an addition to net income because it means the company collected cash from customers for previous sales.
For the Inventory, if the balance decreased from 768,437 to 676,089, it means that the company sold more inventory than it purchased. This decrease is treated as an addition to net income in the operating section because it signifies that the cost of the inventory sold was higher than the cost of the inventory purchased. Conversely, if the balance increased, it would be treated as a subtraction from net income because it means the cost of the inventory sold was lower than the cost of the inventory purchased.