The Direct Method of Preparing the Statement of Cash Flows

question 22

Multiple Choice

The direct method of preparing the statement of cash flows:

• A) reports where cash came from and how it was spent on operating activities.
• B) is used by a vast majority of companies.
• C) is preferred by FASB.
• D) is much easier for companies to compute.

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Definitions:

Substitution Effect

The change in the consumption pattern of goods or services due to a change in their relative prices, causing consumers to replace more expensive items with cheaper alternatives.

Income Effect

The change in the quantity demanded of a good resulting from a change in consumer income, holding prices constant.

Inelastic Demand

A situation where the demand for a product does not significantly change with a change in price.

Total Revenues

The overall amount of money generated from sales of goods or services before deducting any expenses.