Which of the Following Is the Clearest Example of a Preventive

question 28

Multiple Choice

Which of the following is the clearest example of a preventive control?

• A) Once each year, a company looks over its payroll records to see if any employee has been paid more money than their authorized salary.
• B) Once each year, a company counts its inventory and investigates why some items are missing.
• C) Before it accepts any new orders from a customer, it checks to make sure the customer has a good credit rating.
• D) The company hires attorneys to sue customers who have not paid their bills.

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Definitions:

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, representing the asset's consumption or the loss of its value over time.

Net Income

The total earnings of a company after subtracting all expenses from revenue, including taxes and operating costs, often referred to as the bottom line.

Indirect Method

The indirect method is a widely used approach for preparing the cash flow statement, where net income is adjusted for changes in balance sheet accounts to calculate cash flow from operating activities.

Accounts Payable

Obligations or debts owed by a company to its creditors or suppliers for goods and services received but not yet paid for.