Question

A company uses the indirect method to prepare the statement of cash flows. How will the adjustment to reflect the amount of cash payments to suppliers be presented on the statement?

A) The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section.
B) The adjustment will be for the increase or decrease in inventory for the period and will adjust net income in the operating activities section.
C) The adjustment will be for the increase or decrease in accrued expenses for the period and will adjust net income in the operating activities section.
D) The adjustment will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section.

Answer 1

A) The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section.

Step-by-step explanation:

In the case of the indirect method, the operating activities deal with transactions that impact net income working capital. It would subtract the rise in current assets and a reduction in current liabilities while adding the decline in current assets and an increase in current liabilities.

Such adjustments would be made in working capital. In addition, the net income and the loss on sale are added to the depreciation expense.

While computing the amount of cash payments to suppliers, the adjustment related to the increase or decrease in account payable would be considered