If the balance in prepaid expenses increases during the year, what action should be taken on the statement of cash flows when following the indirect method, and why? O The net change in prepaid expenses should be subtracted from net income, because the net increase in prepaid expenses impacted net income but did not reduce the cash balance. O The net change in prepaid expenses should be added to net income, because the net increase in prepaid expenses impacted net income but did not increase the cash balance. The net change in prepaid expenses should be added to net income, because the net increase in prepaid expenses did not impact net income but did increase the cash balance. The net change in prepaid expenses should be subtracted from net income, because the net increase in prepaid expenses did not impact net income but did reduce the cash balance None of the above.
If the balance in prepaid expenses increases during the year, what action should be taken on the statement of cash flows when following the indirect method, and why? O The net change in prepaid expenses should be subtracted from net income, because the net increase in prepaid expenses impacted net income but did not reduce the cash balance. O The net change in prepaid expenses should be added to net income, because the net increase in prepaid expenses impacted net income but did not increase the cash balance. The net change in prepaid expenses should be added to net income, because the net increase in prepaid expenses did not impact net income but did increase the cash balance. The net change in prepaid expenses should be subtracted from net income, because the net increase in prepaid expenses did not impact net income but did reduce the cash balance None of the above.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:If the balance in prepaid expensel increases during the year, what action should be taken on the
statement of cash flows when following the indirect method, and why?
O The net change in prepaid expenses should be subtracted from net income, because the net increase in
prepaid expenses impacted net income but did not reduce the cash balance.
The net change in prepaid expenses should be added to net income, because the net increase in prepaid
expenses impacted net income but did not increase the cash balance.
O The net change in prepaid expenses should be added to net income, because the net increase in prepaid
expenses did not impact net income but did increase the cash balance.
The net change in prepaid expenses should be subtracted from net income, because the net increase in
prepaid expenses did not impact net income but did reduce the cash balance
None of the above.
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