When Using the Direct Method to Prepare the Statement of Cash

question 8

Multiple Choice

When using the direct method to prepare the statement of cash flows,two adjustments must be made to cost of goods sold to calculate cash paid to suppliers.Which of the following correctly explains the two adjustments?

• A)Decreases in inventory are added to cost of goods sold and decreases in accounts payable are added to cost of goods sold.
• B)Increases in inventory are added to cost of goods sold and increases in accounts payable are deducted from cost of goods sold.
• C)Increases in inventory are deducted from cost of goods sold and increases in accounts payable are deducted from cost of goods sold.
• D)Decreases in inventory are deducted from cost of goods sold and decreases in accounts payable are deducted from cost of goods sold.
• E)None of the answer choices is correct.

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Definitions:

Empiricist Philosophers

Thinkers who argue that knowledge comes primarily from sensory experience as opposed to innate ideas.

Associations

Refers to the connections or correlations between two variables or concepts, often studied in psychology and statistics to understand how they influence each other.

Belief Systems

The collections of principles that shape the perspectives and behaviors of individuals or groups, often encompassing religious, political, and philosophical views.

Unconditioned Stimulus

In classical conditioning, a stimulus that naturally triggers an automatic response without prior conditioning.