Which of the Following Statements Does Not Correctly Describe an Adjustment

question 67

Multiple Choice

Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities using the indirect method?

• A)An increase in accounts receivable will be subtracted from net income.
• B)A loss on the sale of a depreciable asset will be added to net income.
• C)An increase in accrued liabilities will be subtracted from net income.
• D)An increase in accounts payable will be added to net income.

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Definitions:

Cash Basis

An accounting method where revenues are recognized when cash is received, and expenses are recognized when cash is paid out.

Administrative Expenses

Expenses incurred that are not directly tied to a specific function like manufacturing, production, or sales, usually including items like rent, utilities, and management salaries.

Operating Expenses

Costs associated with the day-to-day operations of a business, such as rent, utilities, salaries, and maintenance, but not including cost of goods sold.

Adjusting Entries

Accounting records created at the close of a fiscal period to distribute revenues and expenses to the timeframe they genuinely transpired.