What is considered an increase in operating cash flows in the indirect method?

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Master the UCF ACG2021 Principles of Financial Accounting Final Exam. Study with comprehensive practice tests, flashcards, and multiple choice questions, each with detailed explanations. Ace your exam!

In the context of the indirect method for calculating operating cash flows, both an increase in accounts payable and a decrease in inventory represent adjustments that lead to an increase in operating cash flows.

When accounts payable increase, it indicates that a company has delayed cash outflows, as it owes money to suppliers rather than paying them immediately. This postponement of payment means that cash remains in the business for a longer period, thereby enhancing the cash flow from operating activities.

Similarly, a decrease in inventory signifies that the company has sold more goods than it has purchased or produced during the period, thus increasing cash inflows. When inventory levels drop, it often indicates more efficient use of resources and indicates that goods are being converted to cash through sales at a faster rate.

Therefore, both scenarios contribute positively to operating cash flows, making "all of the above" the correct choice, as they reflect conditions that enhance cash availability from operations.