If a Company Uses the Indirect Method to Prepare the Statement

question 11

Multiple Choice

If a company uses the indirect method to prepare the statement of cash flows, how will depreciation be presented on the statement?

• A)Depreciation expense will be added to net income in the financing activities section.
• B)Depreciation expense will be subtracted from net income in the operating section.
• C)Depreciation expense will be added to net income in the investing activities section.
• D)Depreciation expense will be added to net income in the operating activities section.

---

Definitions:

Bad Debts

Debts that are not recoverable and are written off as a loss by the business because they cannot be collected.

Journal Entries

Journal entries are the recordings of financial transactions in the books of accounts, serving as the primary input in the accounting system.

Doubtful Accounts

Accounts receivable considered unlikely to be collected, prompting businesses to create allowances for bad debts.

Bad Debts Adjustment

An accounting entry made to account for invoices that are not expected to be collected due to customer default.