Analysts Prefer the Indirect Method for the Preparation of the Cash

question 96

Multiple Choice

Analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net cash flow from operating activities provide a yardstick for measuring the

• A)current ratio.
• B)return on assets.
• C)quality of earnings.
• D)rate of dividends.

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Definitions:

Variable Costing

A cost accounting method that only includes variable production costs in the cost of goods sold, excluding fixed manufacturing overhead.

Net Operating Income

A measure of a company's profitability, calculated as the difference between its total revenue and its total operating expenses, excluding taxes and interest.

For The Month

A time-based reference indicating that an action, report, or measurement pertains to the duration of a specific month.

Variable Costing

An accounting method that includes only variable production costs in the cost of goods sold and treats fixed production costs as period expenses.