Schweser Q on wages payable net, employees, liability, reporting, decrease

ramdabom

When preparing a statement of cash flows under the indirect method, the adjustment to net income for an icnrease in WP and a decrease in the deferred tax liability on the balance sheet compared to prior reporting period is
WP Decrease in DTL
A  no adjustment
B +
C + no adjustment
D  +
An explanation would be helpful, I thought that when wages payable goes up, you are paying your employees more, so the NI would go down?

YouCanDoIt

I think it’s D… the WP increase would decrease cash flow because you’ve not actually paid your employees yet (though you’ve promised to) hence, it effects your net income but not your cash flow.
The decrease in deferred tax liability i’m not as sure about but to me it sounds like you finally paid out (of your cash) the taxes you had deferred effecting your cash flow but not effecting your net income.

Kapie

It was A actually

luda002

Since a reduction in DTL is tax expense, the decrease (use of cash) would have already been included in Net Income (on the income statement as a tax expense)…, you won’t need to make any additional adjustment to NI for DTL reduction.

Kapie

should be B

willsucceed

I opt for B
cash flows under the indirect method,
liability is postively related i.e., increase in payable will increase cash flow
Asset is negatively related i.e., increase in receivable will decrease cash flow