Purchase Returns and Allowances Decrease the Net Amount of Cash

question 125

True/False

Purchase returns and allowances decrease the net amount of cash that will be paid for the inventory,and so they should reduce the cost of the inventory as recorded in the Inventory account.

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Definitions:

Indirect Method

A way of preparing the cash flow statement, where net income is adjusted for non-cash transactions and changes in working capital.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or wear and tear.

Accounts Receivable

Outstanding payments from customers for goods or services rendered by a company which have not been settled yet.

Direct Method

A way of preparing the cash flow statement where actual cash inflows and outflows from operating activities are reported, as opposed to the indirect method.