When a Statement of Cash Flows Is Prepared Using the Indirect

question 81

True/False

When a Statement of Cash Flows is prepared using the indirect method, a decrease in the balance of a prepaid expense during the reporting period is an "add back" adjustment to net income to convert it to cash from operating activities.

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Definitions:

Stock Options

Financial instruments granting the holder the right, but not the obligation, to buy or sell a stock at a specified price within a certain period.

GAAP

Generally Accepted Accounting Principles, which are standards and conventions for financial reporting in the United States.

Compensation Costs

The expenses incurred by a company to pay employees, including salaries, benefits, bonuses, and social security contributions.

Grant Date

The date on which an employee receives a stock option or grant as part of their compensation package.