Question

Which of the following should be subtracted from net income in calculating net cash flow from operating activities using the indirect method?
a.An increase in inventory
b.A decrease in prepaid expenses
c.A decrease in inventory
d.An increase in accrued expenses payable

Answer 1

Answer:

a.An increase in inventory

An increase in inventory is an increase in the working capital which means more cash is being spent on buying inventory, therefore the addition to inventory is a decrease in cash flow when calculating cash flow using an indirect method.

Explanation: