Question

If a company is using the indirect method to prepare the statement of cash flows, identify...

If a company is using the indirect method to prepare the statement of cash flows, identify where an increase in the accounts receivable account should be reported:

Multiple Choice

  • An increase in cash flows from operating activities

  • An increase in cash flows from investing activities

  • A decrease in cash flows from operating activities

  • A decrease in cash flows from investing activities

  • An increase in cash flows from financing activities

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Answer #1

If a company is using the indirect method to prepare the statement of cash flows, an increase in the accounts receivable account should be reported: As a decrease in cash flows from operating activities.

Third option is correct.

Changes in current assets and current liabilities are reported under operating activities section of the statement of cash flows.

A decrease in current asset or an increase in current liability is considered as a cash inflow and an increase in current asset or a decrease in current liability is considered as a cash outflow.

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