The correct adjustments to net income to arrive at cash flows from operating activities using the indirect method are to add an increase in accounts payable and subtract an increase in inventory.
What is net income?
- After taxes and other withholdings have been taken out of your paycheck, net income is the amount that is still in your account.
- Net income is the amount of money left over after operating costs, administrative fees, cost of goods sold, taxes, insurance and all other business expenses have been paid.
Why do we calculate net income?
- A company's net income is its profit following the deduction of all costs from sales.
- Net income is a comprehensive indicator of profitability that sheds light on how effectively the management team is managing every facet of the company.
The correct adjustments to net income to arrive at cash flows from operating activities using the indirect method are to add an increase in accounts payable and subtract an increase in inventory.
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