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Company A reported salary expense of $12,000 in its annual Income Statement. The balance in Salaries Payable decreased by $3,000 during the year, according to its Balance Sheet. What amount should Company A report as an adjustment to Net Income in its Statement of Cash Flow, assuming the indirect method is used?


Correct answer. The payment of salaries is an Operating Activity. Under the indirect method, the decrease of Salaries Payable, which is an operating liability account, should be listed as a negative adjustment to Net Income.

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