medium · Principles of Finance

When reconciling Net Income to Cash Flow from Operations (CFO) using the indirect method, how should an increase in Accounts Receivable and an increase in Accounts Payable be treated?

1. Subtract the increase in Accounts Receivable; add the increase in Accounts Payable.
2. Subtract both increases.
3. Add the increase in Accounts Receivable; subtract the increase in Accounts Payable.
4. Add both increases.

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