Question

: After all noncash and nonoperating items are removed from net income, only the changes in the balance sheet connector accounts must be utilized to complete the conversion to cash. For Liberto, those balances were shown previously. Accounts receivable: up $19,000 Inventory: down $12,000 Prepaid rent: up $4,000 Accounts payable: up $9,000 Salary payable: down $5,000 Each of these increases and decreases was used in the direct method to turn accrual accounting figures into cash balances. That same process is followed in the indirect method. How are changes in an entitys connector accounts reflected in the application of the indirect method?