In Preparing the Operating Activities Section of the Statement of Cash

question 27

Multiple Choice

In preparing the operating activities section of the statement of cash flows, most companies in Canada prefer to

• A)use the direct method.
• B)use the indirect method.
• C)present both the indirect and direct methods in their financial reports.
• D)prepare the operating activities section on the accrual basis.

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Definitions:

Salesvolume

Refers to the total number of units sold within a specific period.

Net Operating Income

The profit generated from a business's operations after subtracting operating expenses, but before interest and taxes.

Degree Of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to a change in its sales volume.

Variable Expenses

Expenses that change in proportion to the activity of a business, such as raw material costs or sales commissions.