Under the direct method of determining the net cash provided by (used in)operating activities on the statement of cash flows, a decrease in prepaid expenses would be added to selling and administrative expenses to convert selling and administrative expenses to a cash basis.

Prepaid Expenses

Costs paid for in advance of their use or consumption, recorded as assets on a balance sheet and gradually expensed over the period of use or benefit.

Direct Method

A way of preparing the cash flow statement where actual cash flows from operating activities are listed directly.

Administrative Expenses

Costs related to the general administration of a business, such as salaries of office staff, rent, and utilities.