Question

Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?a. A decrease in accounts payable.b. An increase in accounts receivable.c. Common stock dividends declared and paid.d. A decrease in inventory.

Answer 1

Answer: Option D

Explanation: Cash flow from operating activities can be defined as the cash received or paid by the firms in order to operate its core business and day to day activities.

Inventory is an current asset of an entity that is usually meant to be sold for the purpose of revenue/ cash inflow.

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Therefore, we can say that if there has been a decline in inventory than the company will have an inflow of cash which is added in cash flow from operating activities.