The Indirect Method Starts with Net Earnings and Converts Them

question 45

Multiple Choice

The indirect method starts with net earnings and converts them to net cash provided by operating activities. This means that:

• A) the indirect method starts with net earnings and adds back all the expenses relating to operating activities.
• B) the indirect method calculates net earnings as the difference between net assets and net liabilities.
• C) the indirect method adjusts net earnings, for items that affected reported net earnings but did not affect cash.
• D) the indirect method adjusts net earnings for contra account balances.

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Definitions:

Manufacturing Productivity

The efficiency with which goods are produced, typically measured by the ratio of output to input in the manufacturing process.

Capital Investment

Funds invested in a business by owners for use in further production or expansion activities.

Qualitative Characteristic

A feature that allows users to assess and compare the financial position, performance, and changes in financial position of an entity, emphasizing non-quantifiable information.

Present Value Analysis

A financial calculation that determines the current worth of a future sum of money or stream of cash flows given a specified rate of return.