Next, net income is adjusted for the changes in most current asset, current liability, and income tax accounts on the balance sheet. The accounts receivable balance decreased $663 from $19,230 to $18,567. As cash is increased when cash is collected from customers, a decrease in the accounts receivable balance represents an increase in cash. Therefore, the $663 is added back to net income. If the accounts receivable balance increases, the amount of the increase is subtracted from net income, the opposite of what happens when the balance decreases. The inventory balance increased $107. As inventory is purchased, cash is assumed to be paid, so the $107 increase in the inventory balance is subtracted from net income (a decrease in the inventory balance would be added to net income). Similarly, the $142 increase in the prepaid expenses balance is also deducted from net income. The accounts payable
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