When Preparing a Statement of Cash Flows (Indirect Method), Which

question 32

Multiple Choice

When preparing a statement of cash flows (indirect method) , which of the following is NOT an adjustment to reconcile net income to cash flows from operating activities?

• A) an increase in prepaid expenses
• B) an increase in bonds payable
• C) a decrease in income taxes payable
• D) depreciation expense

---

Definitions:

Mixed Cost

A cost composed of both fixed and variable components, changing in total with activity level but not proportionally.

True Variable Cost

Costs that vary exactly with the level of activity or production volume, including direct materials and some elements of manufacturing overhead.

Fixed Cost

Costs that do not vary with the level of output or sales, remaining constant regardless of the business activity level, such as rent and salaries.

Period Cost

Expenditures that are not directly tied to the production process and are expensed in the period in which they are incurred.