Practice prompt · Q:transactions-to-statements/indirect-cash-flow-001

Prepare the bounded indirect operating bridge

Formative check on starting from net income, removing a noncash income effect, applying signed operating balance changes, and reaching operating cash flow.

Updated Aug 6, 2026 Review due Nov 6, 2026

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Northstar reports $12,000 net income including $3,000 depreciation expense. Accounts Receivable increases $2,000, Inventory increases $4,000, and ordinary Accounts Payable increases $1,000. The balances contain no excluded noncash or scope changes. Which indirect operating reconciliation is correct?

Choose the best answer. A $12,000 + $3,000 + $2,000 + $4,000 + $1,000 = $22,000 operating cash flow. B $12,000 − $3,000 − $2,000 − $4,000 + $1,000 = $4,000 operating cash flow. C $12,000 + $3,000 − $2,000 − $4,000 + $1,000 = $10,000 operating cash flow. D $12,000 operating cash flow because net income is the indirect method's final amount whenever all account balances increased.

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Answer: C

Begin with $12,000 net income. Add $3,000 depreciation, subtract the $2,000 Accounts Receivable increase, subtract the $4,000 Inventory increase, and add the $1,000 Accounts Payable increase. The result is $10,000 net cash provided by operating activities, so choice C is correct.