Using the indirect method, decreases in current assets and increases in current liabilities are both added to net income, whereas increases in current assets and decreases in current liabilities are both subtracted from net income to convert it to net cash flow. Noncash expenses such as depreciation are added back to net income.

\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Cash flow } \\\text { from } \\\text { operating } \\\text { activities }\end{array} & \begin{array} { r } \text { Net } + \\\text { Income }\end{array} & \text { Depreciation- } & \begin{array} { r } \text { Change } + \\\text { in } \\\text { Act/Rec }\end{array} & \begin{array} { c } \text { Change in - } \\\text { inventory }\end{array} & \begin{array} { r } \text { Change in } \\\text { Act/Payables }\end{array} \\\hline \$ 22,500 & \$ 20,000 & \$ 10,000 & \$ 6,500 & \$ 7,000 & \$ 8,000 \\\hline\end{array}

-Depreciation is added back to net income in a statement of cash flows prepared using the indirect method because it:
A)reduces income but not cash.
B)is a cash inflow.
C)is a revenue.
D)is a valuation concept.

If a Company Uses the Indirect Method to Determine Net

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