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Under the indirect method, a decrease in wages payable (a current liability) during the year is treated how?
AReported under financing activities
BAdded to net income
CAdded back as a non-cash expense
DDeducted from net income
Answer & Solution
Correct answer: D. Deducted from net income
1. Rule: decreases in current liabilities are deducted from net income.
2. A fall in wages payable means more cash was paid out than the wage expense recorded.
3. Therefore the decrease is deducted.
4. An increase in a current liability would instead be added.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.2.3 "Add/Deduct rules for working capital", p.272_
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