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

question 105

Multiple Choice

When preparing a statement of cash flows (indirect method) , an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

• A) cash was increased while cost of goods sold was decreased.
• B) cost of goods sold on an accrual basis is lower than on a cash basis.
• C) acquisition of inventory is an investment activity.
• D) inventory purchased during the period was less than inventory sold resulting in a net cash increase.

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Definitions:

Budgeted Unit Sales

The number of units that an organization plans or expects to sell in a specific period, according to its budget.

Beginning Inventory

The value of all the inventory held by a company at the start of an accounting period.

Ending Inventory

The total value of all inventory items that a company has in stock at the end of an accounting period.

Beginning Inventory

The value of inventory on hand at the start of an accounting period, consisting of raw materials, work-in-process, and finished goods.