Which one of the following is subtracted from net income in determining cash flows from operations?

a.

Increase in prepaid insurance

b.

Increase in accounts payable

c.

Decrease in accounts receivable

d. Decrease in prepaid insurance

 

In the operating section of the cash flow statement following adjustments are made to the net income to determine the cash flows from operations:

Add: Decrease in current assets

Add: Increase in current liabilities

Less: Increase in current assets

Less: Decrease in current liabilities

Prepaid insurance is a current asset, therefore an increase in the prepaid insurance will be subtracted from the net income to determine the cash flow from operations.

Hence, option (a) Increase in prepaid insurance is correct.