If a Company Uses the Indirect Method to Prepare the Statement

question 62

Multiple Choice

If a company uses the indirect method to prepare the statement of cash flows, how will the adjustment to reflect the amount of cash payments to suppliers be presented on the statement?

• A)The adjustment will be for the increase or decrease in inventory during the period and will adjust net income in the operating activities section in the statement of cash flows.
• B)The adjustment will be for the increase or decrease in accounts payable during the period and will adjust net income in the operating activities section in the statement of cash flows.
• C)The adjustment will be for the increase or decrease in other accrued expenses during the period and will adjust net income in the operating activities section in the statement of cash flows.
• D)The adjustment will be for the increase or decrease in accounts receivable during the period and will adjust net income in the operating activities section in the statement of cash flows.

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Definitions:

Nonconforming Goods

Goods that fail to meet the specifications, quality, or quantity as outlined in a contract.

Installment Contract

A contract that allows for payment or delivery of goods in portions at specified intervals over a period rather than in a single lump sum.

Apportioned

Divided and distributed in proportions or specific amounts according to a defined scheme or calculation.

Perfect Tender Rule

A legal principle under the Uniform Commercial Code that requires sellers to deliver goods to buyers exactly as specified in their contract, without any deviations.