Qtopia Company Uses the Direct Method to Prepare Its Statement

question 157

True/False

Qtopia Company uses the direct method to prepare its statement of cash flows. It has reported operating expenses of $21,000 on its income statement for the year 2012. If the balance in accrued liabilities has gone up by $1,000 during the year, then $1,000 will have to be added to $21,000 as part of the process to calculate payments to suppliers for operating expenses.

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Definitions:

Allowance Method

An accounting technique that estimates and reduces accounts receivable to reflect only amounts expected to be collected.

Allowance Method

A technique in accounting used to account for bad debts, where anticipated uncollectible accounts receivable are estimated and recorded.

Adjusting Entry

Journal entries made in accounting to update records for expenses and revenues not recorded during an accounting period.

Bad Debt Expense

The estimated amount of accounts receivable that a company does not expect to collect, recognized as an expense on the income statement.