Using the Direct Method to Prepare the Statement of Cash

question 17

Multiple Choice

Using the direct method to prepare the statement of cash flows, cash payments for merchandise inventory is categorized on the statement of cash flows as

• A)a cash payment in the operating activities section on the statement of cash flows.
• B)a cash receipt in the operating activities section on the statement of cash flows.
• C)a cash payment in the investing activities section on the statement of cash flows.
• D)a cash receipt in the investing activities section on the statement of cash flows.

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Definitions:

Direct Labour

The work done by employees directly involved in manufacturing a product or delivering a service, typically accounted for as a variable cost.

Direct Materials

Raw materials that can be directly traced to the manufacturing of a product in a cost-effective manner.

Manufacturing Overheads

Indirect costs related to manufacturing that cannot be directly traced to specific products, including utilities, maintenance, and factory equipment depreciation.

Work-in-Process Inventory

Items that are partially completed in the production process; they are not yet finished goods but are no longer raw materials.