The Indirect Method for Preparation of the Statement of Cash

question 77

True/False

The indirect method for preparation of the statement of cash flows calculates the net cash inflows outflows) from operating activities by adjusting accrual net income to a cash basis.

---

Definitions:

First-In, First-Out

An inventory valuation method where goods first purchased or produced are the first to be sold or used, assuming the earliest inventory costs flow out first.

Conversion Costs

Conversion costs are manufacturing or production costs that include direct labor and overhead expenses, necessary to convert raw materials into finished goods.

Equivalent Units

Equivalent units refer to a conversion measure used in cost accounting to express the amount of work done by manufacturers on units that are only partially completed at the end of an accounting period.

Process Costing System

An accounting methodology used in manufacturing, where costs are assigned to processes or departments and averaged over the units produced, suitable for homogeneous products.