Excerpts from Neuwirth Corporation\'s comparative balance sheet appear below: En

Question

Excerpts from Neuwirth Corporation's comparative balance sheet appear below:

                                                 Ending balance                  Beginning balance

Cash & cash equivalents            37,000                                    27,000

Accounts receivable                 24,000                                        28,000

Inventory                                   65,000                                        68,000

Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

-The change in Accounts Receivable is added to net income; The change in Inventory is added to net income

-The change in Accounts Receivable is added to net income; The change in Inventory is subtracted from net income

-The change in Accounts Receivable is subtracted from net income; The change in Inventory is subtracted from net income

-The change in Accounts Receivable is subtracted from net income; The change in Inventory is added to net income

Explanation / Answer

Statement showing computations Particulars Ending Balance Beginning Balance Comments Accounts Receivable                                24,000.00                      28,000.00 Decrease in AR Inventory                                65,000.00                      68,000.00 Decrease in Inventory Since the Current assets have decreased therefore they should be added to net income The change in Accounts Receivable is added to net income; The change in Inventory is added to net income

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