When using the indirect method, subtracting an increase in accounts receivable from net income eliminates the effect of recording credit sales that increased net income, but did not impact cash.
The Indirect Method: What Is It?
One of two accounting techniques that are used to produce a cash flow statement is the indirect method. The indirect method converts the operating component of the cash flow statement from the accrual method to the cash method of accounting by using increases and decreases in balance sheet line items.
The direct technique, which lists actual cash inflows and outflows made during the reporting period, is the alternative approach for completing a cash flow statement. In practice, the indirect method is more frequently employed, particularly by larger organizations.
to know more about indirect method
https://brainly.com/question/25717578
#SPJ4
