Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

13. Statement of Cash Flows

Operating Activities: Indirect Method

Financial Accounting

13. Statement of Cash Flows

Operating Activities: Indirect Method

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Multiple Choice

Which of the following adjustments is made to net income when preparing the operating activities section of the statement of cash flows using the indirect method?

Add cash paid for equipment purchases

Subtract cash received from issuing common stock

Add back depreciation expense to net income

Subtract dividends paid to shareholders

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Verified step by step guidance

Understand the purpose of the indirect method: The indirect method starts with net income and adjusts it for non-cash transactions and changes in working capital to calculate cash flows from operating activities.

Identify the adjustment related to depreciation expense: Depreciation is a non-cash expense that reduces net income but does not affect cash flow. Therefore, it must be added back to net income to reflect the actual cash flow.

Eliminate irrelevant options: Cash paid for equipment purchases and cash received from issuing common stock are related to investing and financing activities, not operating activities. Dividends paid to shareholders are also part of financing activities.

Focus on the correct adjustment: Adding back depreciation expense to net income is the correct adjustment because it ensures that the cash flow statement reflects only cash-based transactions.

Conclude the adjustment process: By adding back depreciation expense, the operating activities section of the cash flow statement accurately represents the cash generated or used by the company's core operations.