Using the Indirect Method to Calculate Net Cash Provided by Operating

question 113

Multiple Choice

Using the indirect method to calculate net cash provided by operating activities, a decrease in prepaid expenses is:

• A) subtracted from net income.
• B) added to net income.
• C) ignored since it does not affect expenses.
• D) ignored since it does not affect income.

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Definitions:

Accommodation Maker

An individual who signs a loan document as a guarantor without receiving any of the loan proceeds, promising to pay the debt if the principal borrower fails to do so.

Primarily Liable

Being directly and foremost responsible for a legal obligation or debt.

Promissory Note

A financial instrument that contains a written promise by one party to pay another a definite sum of money, either on demand or at a specified future date.

Forged Indorsement

An unauthorized signature on a negotiable instrument, such as a check, meant to transfer the instrument’s ownership.