Assume That the Direct Method Is Used to Prepare the Operating

question 153

Multiple Choice

Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.Which of the following statements is correct concerning a decrease in Accounts Payable?

• A)Since the cash payments were more than the credit purchases,the decrease must be added to purchases to calculate cash payments to suppliers.
• B)Since the cash payments were less than credit purchases,the decrease must be added to purchases to calculate cash payments to suppliers.
• C)Since the cash payments were more than credit purchases,the decrease must be subtracted from purchases to cash payments to suppliers.
• D)Since the cash payments were less than credit purchases,the decrease must be subtracted from purchases to calculate cash payments to suppliers.

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Definitions:

Opportunity Costs

The value of the best alternative foregone when a decision is made to pursue a particular action, essentially the cost of choosing one option over another.

Implicit Costs

The opportunity costs of using resources owned by the firm for its own production, instead of earning income elsewhere.

Explicit Costs

Direct, out-of-pocket payments made for the operation of a business, such as wages, rent, and materials.