The Indirect Method of Preparing a Statement of Cash Flows

question 86

Short Answer

The indirect method of preparing a statement of cash flows begins with net income and then adjusts it for noncash items to produce net cash flow from ____________________.

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Definitions:

Unused Capacity

The portion of a company’s resources or capabilities that are not currently utilized or producing income.

Capacity

The maximum output that a company can produce under normal conditions over a certain period.

Predetermined Overhead Rate

A rate calculated at the beginning of a period, used to allocate overhead costs to products based on a particular activity base.

Machine-Hours

A metric assessing the amount of produced goods or operations based on machines' operation duration.