Final answer:
In the context of the indirect method for the statement of cash flows, adjustments are made to net income, including adding back non-cash charges and subtracting increases in current assets, to calculate cash flows from operations.
Step-by-step explanation:
In the calculation of cash flows from operations using the indirect method on the statement of cash flows, non-cash expenses, changes in working capital, and other items are adjusted in relation to the net income. The question is about what is subtracted from net income in this process.
To clarify, the indirect method begins with net income and then makes adjustments for non-cash transactions, changes in working capital, and provisions for things like depreciation and amortization which are added back to net income, since these are non-cash charges.
However, items that you may need to subtract typically include an increase in accounts receivable, inventory, and other current assets, while an increase in accounts payable, accrued expenses, or other current liabilities might be added back.
It is thus not about subtracting explicit or implicit costs directly from net income, but about adjusting the net income for changes that affected cash but were not part of the net income calculation.