A Company Uses the Direct Method to Prepare the Statement

question 88

Multiple Choice

A company uses the direct method to prepare the statement of cash flows. How will the amount of cash received from customers be computed?

• A)The amount of cash received from customers is computed as cost of goods sold plus ending inventory minus beginning inventory.
• B)The amount of cash received from customers is computed as cost of goods sold minus ending inventory plus beginning inventory.
• C)The amount of cash received from customers is computed as sales revenue plus the decrease (or minus the increase)in accounts receivable.
• D)The amount of cash received from customers is computed as sales revenue minus the decrease (or plus the increase)in accounts receivable.

---

Definitions:

Mortgage

A loan secured by the collateral of specified real estate property that the borrower is obliged to pay back with a predetermined set of payments.

Assignment

The transfer of rights, property, or responsibilities from one party to another.

Time is of the Essence

A contractual clause indicating that the timing of certain actions or tasks is critical and failure to perform them on time constitutes a breach of contract.

Reasonable Period

An amount of time which is fairly or sensibly expected under the circumstances for a specific action or response.