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The net increase in Accounts Receivable (AR) amounts to $30,000 and the net increase in Wages Payable (WP) is $20,000. Assuming no accounts were written off for lack of payment, what is the net effect of AR and WP on the adjustments to Net Income if the indirect method is used in the Statement of Cash Flows?


Correct answer. A negative (positive) adjustment to Net Income should be made for increases (decreases) in operating assets and decreases (increases) in operating liabilities. Accounts Receivable, an operating asset, increased by 30,000, so an adjustment of negative 30,000 should be made to net income. Wages Payable, an operating liability, increased by 20,000, so an adjustment of positive 20,000 should be made to net income. The net of the two adjustments is a negative 10,000.

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