During the Year the Balance in the Prepaid Expenses Account

Multiple Choice

During the year the balance in the Prepaid Expenses account increased by $6,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:

A) subtract the $6,000 from the selling and administrative expenses reported on the income statement.
B) add the $6,000 to the selling and administrative expenses reported on the income statement.
C) subtract the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.