Why decrease in prepaid expense is added in cash flow statement?

Dear Student,

Increase in prepaid expense would mean more cash spent than recognised as expenses in ascertaining the net income, therefore any increase in prepaid expense indicates a cash outflow.

Decrease in prepaid expense would mean more amount was accounted as expense, however there no simultaneous cash outflow for such expenses, therefore any decrease in prepaid expense indicates a cash inflow.

Hope, you get it now.

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As it does not result in any cash flow
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prepaid expenses are current asset and  when it decreases it is added to operating activity because decrease in current asset is inflow of cash
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