A Company Uses the Indirect Method to Prepare the Statement

question 173

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 $20,000 will be subtracted from net income.
• B)The decrease of $20,000 will be subtracted from cost of goods sold.
• C)The decrease of $20,000 will be added to net income.
• D)The decrease of $20,000 will be added to cost of goods sold.

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Definitions:

Debit Balance

An account balance that occurs when the total amount of debits exceeds the total amount of credits in an account.

Accounts Payable

A liability account on the balance sheet, representing the company's obligation to pay off a short-term debt to its creditors or suppliers.

Sales Tax Payable

The amount of sales tax collected from customers that a business owes to the government.

Sales Tax

A tax imposed by a government on the sale of goods and services.