Which of the following would be added to net income in the operating activities section of a statement of cash flows prepared using the indirect method?

A) an increase in accounts receivable.
B) an increase in prepaid expenses.
C) an increase in accrued liabilities.
D) an increase in property, plant and equipment.

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Chuni Fissha · Accepted Answer

Final Answer : C, Explanation :  An increase in accrued liabilities indicates that expenses have been incurred but not yet paid in cash, which means the net income would need to be adjusted upwards in the operating activities section of the cash flow statement when using the indirect method. This adjustment is made because the accrual basis of accounting records expenses when they are incurred, not when they are paid.

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