A Company Uses the Indirect Method to Prepare the Statement

question 84

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its financial statements. *Relates solely to the acquisition of inventory
What will appear in the operating activities section related to accounts payable?

• A)The increase of $10,000 will be subtracted from net income.
• B)The increase of $10,000 will be added to net income.
• C)The increase of $10,000 will be subtracted from cost of goods sold.
• D)The increase of $10,000 will be added to cost of goods sold.

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Definitions:

Liabilities

Financial obligations of a business, including money owed to creditors or suppliers.

Financial Instrument

Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Bank Overdraft

A facility that allows an individual or business to withdraw more money from a bank account than has been deposited, up to an agreed limit.

Notes Payable

A liability represented by a written promise to pay a specific sum of money, usually with interest, by a specified date.