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:

Community Property

A legal system of property ownership typically in effect between spouses, where assets acquired during the marriage are owned jointly.

Joint Tenancy

A form of legal co-ownership of property where co-owners have an equal share and the right of survivorship, meaning that upon the death of one owner, their share automatically passes to the remaining co-owners.

Right-Of-Way Easement

A legal right granted to a person or entity to pass through another's land for a specified purpose.

Solar Easement

A legal agreement that ensures uninterrupted access to sunlight for solar energy systems, often through a property owner's rights to protect against obstructions that would shade their solar collectors.