If the Credit Amount of an Entry to Record the Payment

question 67

Multiple Choice

If the credit amount of an entry to record the payment of salaries was not posted:

• A) shareholders' equity would be understated
• B) expenses would be understated
• C) expenses would be overstated
• D) assets would be overstated

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Definitions:

Indirect Method

A way of reporting net cash flow from operating activities by starting with net income and adjusting for changes in balance sheet items.

Direct Method

A accounting approach for creating the cash flow statement, which lists major classes of gross cash receipts and payments.

Operating Activities

Activities related to the day-to-day functions of a business involved in producing and selling its products or services, which are reflected in its cash flow.

Patent Amortization

The gradual expensing of the cost of a patent over its useful life, reflecting the consumption of the patent's value.