In Calculating Cash Flows from Operating Activities Using the Indirect

question 172

Multiple Choice

In calculating cash flows from operating activities using the indirect method, an increase in inventories is

• A) added to net income.
• B) deducted from net income.
• C) ignored because it does not affect cash.
• D) not reported on a statement of cash flows.

---

Definitions:

Accounting Guidelines

Established principles and standards that govern financial reporting and bookkeeping practices.

Cost Method

A method of accounting where the investment is recorded at its acquisition cost, without subsequent change to market value.

Equity Method

An accounting technique used for recording investments in associate companies where the investment is initially recorded at cost and adjusted thereafter for the post-acquisition change in the investor's share of net assets of the investee.

Stock Investments-Long

Investments in stock securities intended to be held for a long-term period for capital appreciation, dividend income, or both.