In Preparing Financial Statements with Cash Flow Prediction as a Major

question 39

Multiple Choice

In preparing financial statements with cash flow prediction as a major objective,a company should choose an accounting policy that ________.

• A)allows a cost to be capitalized
• B)allows a cost to be expensed
• C)results in income-smoothing
• D)maximizes net income

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Definitions:

Underapplied Manufacturing Overhead

A situation where the allocated manufacturing overhead costs are less than the actual overhead costs.

Overapplied Manufacturing Overhead

Occurs when the amount of overhead applied to products or services exceeds the actual manufacturing overhead costs incurred.

Debit

An entry on the left side of an account, indicating an increase in assets or expenses, or a decrease in liabilities, equity, or revenue.

Credit

An accounting entry that increases liabilities or equity or decreases an asset or expense. In finance, it's also the ability to obtain goods or services before payment, based on the trust that payment will be made in the future.