An increase in accounts receivable of $1,000 over the course of a year would be shown on the company's statement of cash flows prepared under the indirect method as:

A) an addition to net income of $1,000 in order to arrive at net cash provided by operating activities.
B) a deduction from net income of $1,000 in order to arrive at net cash provided by operating activities.
C) an addition of $1,000 under financing activities.
D) a deduction of $1,000 under financing activities.

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Skyler Atchison · Accepted Answer

Final Answer : B, Explanation :  An increase in accounts receivable represents a decrease in cash received from customers. Therefore, it would be deducted from net income in order to arrive at net cash provided by operating activities on the company's statement of cash flows prepared under the indirect method. Choice A is incorrect because adding the increase to net income would overstate net income as the increase represents income that has not yet been received in cash. Choices C and D are incorrect as an increase in accounts receivable is not classified as a financing activity.

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