Assume a Company Uses the Direct Method to Prepare Its

question 136

Multiple Choice

Assume a company uses the direct method to prepare its statement of cash flows.If the company's inventory and accounts payable both increase during the accounting period,how would these changes affect cash flow calculations?

• A)The changes in each account are both added to net income.
• B)The change in inventory is subtracted from cost of goods sold and the change in accounts payable is added to cost of goods sold to find the cash paid to suppliers.
• C)The changes in each account are both subtracted from net income.
• D)The change in inventory is added to cost of goods sold and the change in accounts payable is subtracted from cost of goods sold to find the cash paid to suppliers.

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Definitions:

One-group Pretest-posttest Design

An experimental design where a single group is tested before and after an intervention, without the use of a control group.

Internal Validity

pertains to the extent to which a study or experiment accurately establishes a causal relationship between variables, minimizing the influence of external factors.

Systematic Changes

Alterations that follow a consistent, predictable pattern and are often due to specific causes or interventions.

Time

The indefinite continued progress of existence and events in the past, present, and future regarded as a whole.