Explanation

Under the indirect method of preparing the cash flow statement, we start with net income and make adjustments to convert accrual-based net income to cash flow from operating activities.

Key adjustments include:

1. Non-cash expenses (like depreciation, amortization) are added back to net income because they reduced net income but didn't involve cash outflow.
2. Changes in working capital accounts:
   • Decreases in current assets (like accounts receivable, inventory) are added to net income
   • Increases in current assets are subtracted from net income
   • Increases in current liabilities (like accounts payable) are added to net income
   • Decreases in current liabilities are subtracted from net income

Analyzing each option:

• A. Purchase of equipment - This is a capital expenditure and belongs in the investing activities section, not operating activities. It should not be subtracted from net income in the operating section.

• B. Decrease in accounts payable - This is correct. A decrease in accounts payable means the company paid off some of its suppliers, which represents a cash outflow. Since accounts payable is a current liability, a decrease should be subtracted from net income to arrive at cash flow from operating activities.

• C. Amortization expense of intangible assets - This is a non-cash expense that should be added back to net income, not subtracted. Amortization reduces net income but doesn't involve cash outflow, so we add it back to convert accrual net income to cash basis.

Therefore, only option B (Decrease in accounts payable) should be subtracted from net income under the indirect method.