Question

Which of the following items would be correct adjustments to net income to arrive at cash...

Which of the following items would be correct adjustments to net income to arrive at cash flows from operating activities, using the indirect method? (Correct all that apply.)

1. Subtract increase in wages payable.

2. Subtract increase in inventory.

3. Add increase in accounts receivable.

4. Add increase in accounts payable.

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Answer #1

The following items are correct adjustments to net income to arrive at cash flows from operating activities, using the indirect method-

2 . Subtract increase in inventory   

4. Add increase in accounts payable.

Reason - Decrease in current assets and increase in current liabilities is added because both involves inflow of cash.

Increase in current assets and decrease in current liabilities is subtracted because both involves outflow of cash.

So, correct statements are 2nd and 4th.

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