Assume a Company Uses the Direct Method to Prepare Its

question 136

Multiple Choice

Assume a company uses the direct method to prepare its statement of cash flows.If the company's inventory and accounts payable both increase during the accounting period,how would these changes affect cash flow calculations?

• A)The changes in each account are both added to net income.
• B)The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
• C)The changes in each account are both subtracted from net income.
• D)The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

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Definitions:

Temporal Attribute

Characteristics or features related to the timing of events or phenomena.

Contextual Cue

Any piece of information from the environment that aids in enhancing the understanding or recall of information.

Ebbinghaus

Refers to Hermann Ebbinghaus, a psychologist known for his research on memory and the forgetting curve.

Forgetting

The inability to recall a past experience.