Which of the following activities results in a subtraction from net income when calculating operating cash flows using the indirect method?

The correct response reflects the nature of how an increase in supplies affects the operating cash flows when using the indirect method. In the indirect method, net income is adjusted for changes in working capital accounts to convert it to cash flows from operating activities.

When there is an increase in supplies, it generally indicates that a company has purchased more supplies than it has used during the period. This purchase is considered an outflow of cash because cash is spent to acquire these supplies, reducing the cash available from operating activities. Thus, this increase in supplies is subtracted from net income when reconciling to cash flows from operating activities.

In contrast, a decrease in accounts receivable would suggest that cash has been collected, thus resulting in an addition to cash flows. A gain on the sale of equipment affects investing cash flows and requires a subtraction from net income in the reconciliation due to the cash not reflecting the operational performance. Depreciation expense is added back to net income since it is a non-cash charge. Therefore, an increase in supplies directly leads to a reduction in cash flows from operations, which underscores why this activity results in a subtraction from net income.