How Should the Changes in Current Accounts Be Treated in Computing

question 44

Multiple Choice

How should the changes in current accounts be treated in computing cash flows from operating activities using the indirect method?

• A)Increases in all current accounts must be added to net income
• B)Increases in all current accounts must be subtracted from net income
• C)Increases in all current assets must be added to net income and increases in current liabilities subtracted
• D)Increases in all current assets must be subtracted from net income and increases in current liabilities added

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Definitions:

Price Level

The summarised price average of every good and service within the economic domain.

Output Levels

Output levels refer to the quantity of goods and services produced by an economy or firm during a specific period.

Recessionary Gap

A situation in which the real GDP of an economy is lower than its potential GDP at the full employment level, indicating underutilized resources.

Actual Output

Actual output refers to the real GDP or the total value of all goods and services produced in an economy at a given time, contrasting with potential output.