A Company Uses the Direct Method to Prepare the Statement

question 2

Multiple Choice

A company uses the direct method to prepare the statement of cash flows.How will the amount of cash received from customers be computed?

• A)The amount of cash received from customers is computed as sales revenue plus the decrease (or minus the increase)in accounts receivable.
• B)The amount of cash received from customers is computed as cost of goods sold minus ending inventory plus beginning inventory.
• C)The amount of cash received from customers is computed as cost of goods sold plus ending inventory minus beginning inventory.
• D)The amount of cash received from customers is computed as sales revenue minus the decrease (or plus the increase)in accounts receivable.

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Definitions:

Net Income

The conclusive earnings of a firm after removing all financial outlays and tax obligations from its aggregate revenue.

Equity Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, incorporating the income on the investor's income statement.

Amortization

The approach of progressively depreciating the initial investment in an intangible asset over its effective life.

Inventory

The total quantity of goods and materials a business holds for the purpose of resale or production.