In Creating a Statement of Cash Flows Using the Indirect

question 54

Multiple Choice

In creating a statement of cash flows using the indirect method, which of the following statements is TRUE about depreciation expense?

• A) It is added back as an adjustment to net income in the operating activities section.
• B) It is shown as a negative cash flow in the investing activities section.
• C) It is added back to purchases of plant assets under investing activities.
• D) It is shown as a negative cash flow under operating activities.

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Definitions:

Asset Accounts

Accounts that track the value of a company's economic resources, or assets, such as cash, inventory, property, and equipment.

Accrual Basis

An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

Accounting

An information system that provides reports to stakeholders about the economic activities and condition of a business.

Adjusting Process

The method of updating account balances at the end of an accounting period to reflect accurate financial positions.