If a Company Uses the Indirect Method to Prepare the Statement

question 108

Multiple Choice

If a company uses the indirect method to prepare the statement of cash flows,which of the following items would be subtracted from net income to determine the net cash flow from operating activities?

• A)A loss on the sale of equipment would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.
• B)An increase in dividends payable would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.
• C)Amortization of a premium on bonds payable would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.
• D)Depreciation expense would be subtracted from net income to determine the net cash flow from operating activities in the statement of cash flows.

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Definitions:

Accounting Cycle

The full process of recording and processing all financial transactions of a company, from when the transaction occurs, to its representation on the financial statements, to closing the accounts.

Adjusting Entries

Journal entries made in an accounting system to update account balances before financial statements are prepared, ensuring records adhere to the accrual basis of accounting.

Trial Balance

A bookkeeping report that lists the balances of all ledgers in two columns, debits and credits, to ensure they are equal.

Current Assets

Current assets are assets that a company expects to convert into cash, sell, or consume through the normal operations of the business within one year or one business cycle, whichever is longer.