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In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n): Addition to net income in the operating activities section. Deduction from net income in the operating activities section. Financing activity. Investing activity.

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Answer: the correct answer is deduction from net income in the operating activities section.

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A decrease in the accounts receivable account is considered an Addition to net income in the operating activities section.

A cashflow statement:

  • shows the flow of actual cash in a business
  • has an indirect and direct method
  • cash inflows are added and cash outflows are deducted

A decrease in the accounts receivable account will usually happen because the account receivable has paid some of their balance. This means that cash is coming into the company.

We can therefore conclude that the decrease will be added to the income because it represents cash coming in.

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