Asked by Jiwanjot Singh on Apr 28, 2024
Verified
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:
A) An increase in cash flows from operating activities
B) An increase in cash flows from investing activities
C) A decrease in cash flows from operating activities
D) A decrease in cash flows from investing activities
E) An increase in cash flows from financing activities
Indirect Method
A way of calculating cash flows in the cash flow statement where net income is adjusted for changes in non-cash accounts to arrive at cash provided by operating activities.
Operating Activities
Operating activities refer to the day-to-day operations of a business that generate revenue and incur expenses, impacting the company's cash flow.
Accounts Receivable
Monetary amounts owed to a company by its customers for goods or services provided on credit.
- Ascertain and tally cash flows emanating from operational endeavors by employing both the direct and indirect strategies.
- Examine the consequences of shifts in current assets and liabilities on the movement of cash flows.
Verified Answer
JH
Jason HanceApr 30, 2024
Final Answer :
C
Explanation :
An increase in the accounts receivable account represents an increase in money owed to the company by their customers, and therefore a decrease in cash flows from operating activities. This is because the company has not yet received payment for the products or services they have provided, resulting in a decrease in cash on hand.
Learning Objectives
- Ascertain and tally cash flows emanating from operational endeavors by employing both the direct and indirect strategies.
- Examine the consequences of shifts in current assets and liabilities on the movement of cash flows.