A Company Uses the Indirect Method to Prepare the Statement

question 121

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. It presents the following data on its financial statements: *Relates solely to the acquisition of inventory
What will appear in the operating activities section related to inventory?

• A)The decrease of $18,000 will be subtracted from net income.
• B)The decrease of $18,000will be subtracted from cost of goods sold.
• C)The decrease of $18,000 will be added to net income.
• D)The decrease of $18,000 will be added to cost of goods sold.

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Definitions:

Asset

An item or resource owned by an individual or a business, having economic value and expected to provide future benefits.

Direct Material

Raw materials that are directly incorporated into a finished product and can be easily traced.

Indirect Material

Materials used in the production process that can't be directly traced to a finished product, such as lubricants and cleaning supplies.

Storeroom

A designated space for storing inventory, tools, and materials, often found in a manufacturing or production facility.