Assume that the indirect method is used to determine net cash provided by (used in) operating activities and that Prepaid Insurance decreased during the year. That decrease is added to net income because:
A. a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income, but it does not involve cash so it is added back to net income.
B. it accounts for purchasing more insurance during the period than has been expensed.
C. the company paid additional premiums this period in excess of the Insurance Expense recorded on the income statement.
D. it includes the impact of increasing cash and increasing net income.
Answer: A
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