Assume That the Balance of Accounts Payable Does Not Change

question 13

Multiple Choice

Assume that the balance of accounts payable does not change during a period.When preparing a statement of cash flows,an increase in ending inventory over beginning inventory will result in an adjustment to net income under the indirect approach because

• A)the amount of cost of goods sold is equal to the amount of cash paid for purchases.
• B)consumed inventory is an expense but not a use of funds.
• C)the amount of cost of goods sold on an accrual basis is less than the amount of cash paid for purchases of inventory.
• D)the amount of cash paid for purchases of inventory is less than the amount of cost of goods sold on an accrual basis.

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Definitions:

Standards

Criteria or benchmarks used for measuring performance or quality in various fields, including manufacturing, auditing, and accounting.

Actual Information

Factual data or evidence that is true and accurate, without alteration or distortion.

Raw Materials Quantity Variance

The difference between the actual quantity of raw materials used in production and the estimated quantity expected to be used, measured in terms of cost.

Direct Materials Purchases Variance

This measures the difference between the actual cost of direct materials purchased and the expected (or standard) cost of those materials.