In Converting Net Income to Net Cash Provided by Operating

question 55

Multiple Choice

In converting net income to net cash provided by operating activities under the indirect method:

• A) decreases in accounts receivable and increases in prepaid expenses are added.
• B) decreases in inventory and increases in accrued liabilities are added.
• C) decreases in accounts payable and decreases in inventory are deducted.
• D) increases in accounts receivable and increases in accrued liabilities are deducted.

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Definitions:

Retained Earnings

Profits that a company keeps or reinvests rather than distributing to shareholders as dividends.

Cash Available

The total amount of cash or liquid funds a company or individual has accessible for immediate use.

Stock Dividend

A distribution by a company to its shareholders through the issuance of extra shares instead of monetary compensation.

Sufficient Cash

Adequate monetary resources available to a business for meeting immediate and short-term obligations.