Choose the Appropriate Letter to Match the Account Balance Change

question 105

Essay

Choose the appropriate letter to match the account balance change with the type of adjustment made to net income when using the indirect method to determine net cash flow provided by operating activities.
Account Balance Change
1._____ Decrease in Property,Plant,and Equipment
2._____ Increase in Accounts Receivable
3._____ Decrease in Inventory
4._____ Decrease in Prepaid Expenses
5._____ Increase in Accounts Payable
6._____ Decrease in Accrued Liabilities
7._____ Decrease in Income Tax Payable
8._____ Increase in Dividends Payable
9._____ Gain on Sales of Property,Plant and Equipment
10._____ Depreciation
Type of Adjustment
A - Add item to net income
S - Subtract item from net income
N - No adjustment necessary

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Definitions:

Overapplied Overhead

A condition where the overhead applied to products or services exceeds the actual overhead costs incurred.

Overapplied Manufacturing Overhead

A situation where the amount of overhead allocated to products exceeds the actual overhead incurred.

Finished Goods Inventory

Products that have completed the manufacturing process and are ready to be sold.

Absorption Costing

An accounting method that includes all manufacturing costs, both direct and indirect, in the cost of a product.