A Company Uses the Indirect Method to Prepare the Statement

question 12

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows.How will a gain from the sale of equipment be presented on the statement?

• A)A gain from the sale of equipment will be an addition in the investing activities section.
• B)A gain from the sale of equipment will be added to net income in the operating activities section.
• C)A gain from the sale of equipment will be deducted from net income in the operating activities section.
• D)A gain from the sale of equipment will be a deduction in the financing activities section.

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Prepayments

Payments made in advance for goods or services, which are recorded as assets on the balance sheet until the corresponding goods or services are received.

Unearned Revenue

Money received by an entity for a service or product yet to be delivered or performed.

Adjusting Entry

A journal entry made in accounting records to update the balances of accounts at the end of an accounting period before financial statements are prepared.