When the Indirect Method Is Used to Determine Net Cash

question 173

Multiple Choice

When the indirect method is used to determine net cash provided by (used in) operating activities,adding an increase in Interest Payable to net income eliminates the effect of recording expenses that:

• A)increased net income,but did not impact cash.
• B)decreased net income,but did not impact cash.
• C)increased net income and increased cash flow.
• D)decreased net income and decreased cash flow.

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Definitions:

Equilibrium Output

The level of output where the quantity of goods produced equals the quantity of goods consumed, resulting in market equilibrium.

Potential Output

The maximum amount of goods and services an economy can produce when it is most efficiently utilizing all its resources.

Actual Output

The real quantity of goods and services produced by an economy or firm at a given period, regardless of capacity.

Nominal GDP

The overall economic output of a country, consisting of all final goods and services produced in a defined period, assessed at prevailing market prices without correction for inflation.