Which of the Following Statements Is Most Likely to Be

question 111

Multiple Choice

Which of the following statements is most likely to be right?

• A)The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the direct method.
• B)The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the indirect method.
• C)The FASB prefers the indirect method of preparing the operating activities section of the statement of cash flows.
• D)Most companies use the indirect method of preparing the operating activities section of the statement of cash flows.

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Definitions:

Days' Payable Outstanding

A financial ratio that calculates the average time it takes for a company to pay its suppliers.

Accounts Payable

Immediate financial obligations a business has, indicating money owed to vendors or lenders for products and services that have been delivered but remain unpaid.

Conversion Costs

The combined costs of direct labor and manufacturing overheads incurred when converting raw materials into finished products.

Raw Materials

Basic materials used in the production process, transformed into finished goods through manufacturing.