Cash flows from (used for) operating activities—indirect method. Indicate whether each of the following would be added to or deducted from net income in determining net cash flows... Cash flows from (used for) operating activities—indirect method. Indicate whether each of the following would be added to or deducted from net income in determining net cash flows from operating activities by the indirect method: a. Decrease in inventory b. Increase in accounts receivable c. Increase in accounts payable d. Loss on retirement of long-term debt e. Depreciation of fixed assets f. Decrease in notes receivable due in 60 days from customers g. Increase in salaries payable h. Decrease in prepaid expenses i. Amortization of patent j. Increase in notes payable due in 120 days to vendors k. Gain on disposal of fixed assets. Read more

Understand the Problem

The question is asking for guidance on how to treat various line items when calculating net cash flows from operating activities using the indirect method. Specifically, it seeks to determine whether each item should be added to or deducted from net income in this calculation.

More Information

The indirect method adjusts net income by the changes in non-cash accounts and working capital to reflect the cash flow from operating activities. This approach helps identify non-cash or non-operating line items that might skew the cash flow situation.

Tips

A common error is confusion between non-cash adjustments and those affecting working capital and incorrectly adjusting net income. It’s important to clearly differentiate between these when applying the indirect method.

Sources

• Solved Cash Flows from Operating Activities-Indirect Method - Chegg - chegg.com
• Cash Flow From Operating Activities (CFO) Defined, With Formulas - Investopedia - investopedia.com