When the Indirect Method Is Used,if a Prepaid Expense Account

question 1

Multiple Choice

When the indirect method is used,if a prepaid expense account decreases during the accounting period,the change in the prepaid expense account is:

• A) added to the change in the cash account.
• B) subtracted from net income.
• C) added to net income.
• D) subtracted from the change in the cash account.

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Definitions:

Economic Loss

A situation where total costs exceed total revenues, leading to a negative economic profit.

AVC

Average Variable Cost, an economic metric reflecting the variable costs (such as labor and materials) per unit of output.

ATC

Average Total Cost, which is the sum of all production costs divided by the quantity of output produced, a critical factor in economic analysis of a company's efficiency.

Shut-down Point

The level of operation at which a firm's total revenue is equal to its total variable costs, below which it is more beneficial for a firm to cease production.