If a Company Is Using the Indirect Method to Prepare

question 2

Multiple Choice

If a company is using the indirect method to prepare the statement of cash flows, identify where an increase in the accounts receivable account should be reported:

• A) A decrease in cash flows from investing activities
• B) An increase in cash flows from operating activities
• C) An increase in cash flows from investing activities
• D) A decrease in cash flows from operating activities
• E) An increase in cash flows from financing activities

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Definitions:

Desired Profit

The target earnings a company sets to achieve within a specific period through its operational activities.

Variable Cost Concept

Expenses that change in proportion to the amount of production or service operations.

Differential Analysis

A decision-making process that examines the differences in cost and revenue between different business alternatives to determine the most profitable option.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.