In Preparing a Statement of Cash Flows Using the Indirect

question 12

Multiple Choice

In preparing a statement of cash flows using the indirect method, an increase in an unearned revenue account should

• A) be shown as a financing activity.
• B) be shown as a deduction from net income in computing net cash flows from operating activities.
• C) not be shown on the statement of cash flows.
• D) be shown as an addition to net income in computing net cash flows from operating activities.

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Definitions:

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is used globally to prepare public company financial statements.

Operating Cash Flow

The cash generated by a company’s normal business operations, indicating whether the company can maintain and grow its operations.

Sales Revenues

Income received from selling goods or services over a period of time before any costs or expenses are deducted.

Capital Cost Allowance

A form of tax depreciation that allows businesses in Canada to deduct the cost of a depreciable property over several years.