If Inventory Decreases and Deferred Revenue Increase During an Accounting

question 40

Multiple Choice

If inventory decreases and deferred revenue increase during an accounting period while the indirect method is used,what does the company do with the changes in these accounts to calculate net cash flows from operating activities?

• A)Both are added to net income.
• B)The change in inventory is added to net income; the change in unearned revenue is subtracted.
• C)Both are subtracted from net income.
• D)The change in unearned revenue is added to net income; the change in inventory is subtracted.

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Definitions:

Dividend Income

Earnings received from owning shares of a company that pays dividends.

Shares

Shares represent portions of equity in a company or an investment, entitling holders to a proportional share of any distributed profits, known as dividends, when they are announced.

Capital Gain

The profit from the sale of a capital asset, such as stocks or real estate, where the sale price exceeds the purchase price.

Dividends

Payments made by a corporation to its shareholder members, often derived from the company's profits.