Assume That the Direct Method Is Used to Prepare the Operating

question 188

Multiple Choice

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows. When Accrued Liabilities increase, it means that the company:

• A) paid more cash than it recorded as operating expenses.
• B) paid less cash than it recorded as operating expenses.
• C) prepaid the operating expenses before they were incurred or recorded.
• D) paid for the operating expenses as they were recordeD.
• When expenses are recorded, the balance in Accrued Liabilities increases. When payments are made, Accrued Liabilities decreases. When Accrued Liabilities increase, it means the company paid that much less cash than it recorded as operating expenses. This amount must be subtracted when computing cash paid to employees and service suppliers for operating expenses.

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