Assume a Company Uses the Direct Method to Prepare Its

question 34

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