--When preparing Statement of Cash Flows using Indirect Method, the Net Income is adjusted to reconcile Net cash provided by Operating activities.
--While doing so,
>Decrease in current assets and Increase in current Liabilities is ADDED to net income, and
>Increase in current asset and decrease in current liabilities is SUBTRACTED from Net Income.
--In given data, the accounts receivables can be seen as
"decreased" while inventory balance has "increased". Both of these
are CURRENT ASSETS,
Hence, Change in account receivables (decrease) will be ADDED to Net Income and Change in Inventory (an increase) will be subtracted from Net Income.
--This means correct answer = Option #2.
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