If the balance in Prepaid Expenses increased during theyear, what action should be taken on the statement of cashflows when following the indirect method, and why?a. The change in the account balance should be subtractedfrom net income because the net increase in PrepaidExpenses did not impact net income but did reduce thecash balance.b. The change in the account balance should be added to netincome because the net increase in Prepaid Expenses didnot impact net income but did increase the cash balance.c. The net change in Prepaid Expenses should be subtractedfrom net income to reverse the income statement effectthat had no impact on cash.d. The net change in Prepaid Expenses should be added tonet income to reverse the income statement effect thathad no impact on cash.
If the balance in Prepaid Expenses increased during the
year, what action should be taken on the statement of
flows
a. The change in the account balance should be subtracted
from net income because the net increase in Prepaid
Expenses did not impact net income but did reduce the
cash balance.
b. The change in the account balance should be added to net
income because the net increase in Prepaid Expenses did
not impact net income but did increase the cash balance.
c. The net change in Prepaid Expenses should be subtracted
from net income to reverse the income statement effect
that had no impact on cash.
d. The net change in Prepaid Expenses should be added to
net income to reverse the income statement effect that
had no impact on cash.
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