The Indirect Method of Preparing a Statement of Cash Flows

question 72

Multiple Choice

The indirect method of preparing a statement of cash flows

• A)eliminates the need for a schedule of noncash investing and financing transactions.
• B)provides a different result than the direct method.
• C)adjusts net income for changes in current accounts.
• D)shows collections from customers rather than the change in Accounts Receivable.

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Definitions:

Direct Labor-Hours

The cumulative hours put in by workers directly engaged in the process of manufacturing or in delivering services.

Predetermined Overhead Rate

The rate at which overhead costs are applied to products or services, estimated before the costs are incurred.

Departmental Predetermined

A rate calculated at the start of the accounting period, used to allocate overhead costs to products based on department-specific criteria.

Overhead Rate

A measure used to calculate how much overhead cost should be allocated to each unit of production, often based on direct labor hours or machine hours.