The Direct Method of Preparing the Statement of Cash Flows

question 56

Multiple Choice

The direct method of preparing the statement of cash flows:

• A)is preferred by FASB.
• B)is much easier for companies to compute.
• C)both reports where cash came from and how it was spent on operating activities and is preferred by FASB.
• D)reports where cash came from and how it was spent on operating activities.

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Definitions:

EOQ

Economic Order Quantity, a formula used in inventory management to determine the optimal order size that minimizes total inventory costs.

Safety Stock

Additional inventory kept in reserve to protect against stockouts due to variability in demand or supply.

Reorder Point

The inventory level at which a new order should be placed to replenish stock before it runs out.

Quantity Discounts

Price reductions offered to buyers who purchase goods or services in large volumes, incentivizing bulk purchases and increasing overall sales.