If a Company Uses the Indirect Method to Prepare the Statement

question 154

Multiple Choice

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

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

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Definitions:

Profit

The financial gain realized when the amount of revenue gained exceeds the expenses, costs, and taxes involved in sustaining the activity in question.

Long Run Equilibrium

A state in an economy in which all factors of production and inputs can be varied, allowing firms to make adjustments and leading to the normalization of prices and output.

Industry's Adjustment

The process by which industries adapt to changes in economic conditions, technology, or market demands.

Average Total Cost

The total cost of production divided by the number of units produced, representing the average cost per unit.