Question

Which of the following statements is CORRECT? a. In the statement of cash flows, a decrease in inventories is subtracted from net income in the operating activities section. b. In the statement of cash flows, a decrease in accounts payable is subtracted from net income in the operating activities section. c. In the statement of cash flows, depreciation is subtracted from net income in the operating activities section. d. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity. e. In the statement of cash flows, a decrease in accounts receivable is subtracted from net income in the operating activities section.

Answer 1

b. In the statement of cash flows, a decrease in accounts payable is subtracted from net income in the operating activities section.

Step-by-step explanation:

Operating activities: It involves those transactions that even after net income affect the working capital. It would subtract the rise in current assets and a reduction in current liabilities, while adding the decline in current assets and a rise in current liabilities.

These adjustments would be reflected in working capital. In addition the depreciation costs are applied to the net income and the loss on the sale of assets is added while the gain on the sale of assets is deducted