In Preparing the Statement of Cash Flows by the Indirect

question 59

Multiple Choice

In preparing the statement of cash flows by the indirect method,which of the following is an incorrect statement of one of the general rules to convert net income to a cash-basis equivalent?

• A) Increases in current assets are subtracted from net income.
• B) Noncash revenue and gains are subtracted from net income.
• C) Decreases in current assets are added to net income.
• D) Increases in current liabilities are subtracted from net income.

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Definitions:

Variable Costing

Another perspective: A costing methodology that treats only those costs that vary with production level as product costs, emphasizing the impact of fixed costs on profitability.

Special Order Decisions

Special order decisions involve determining whether a business should accept or decline a custom order that differs from normal sales, considering capacity and costing.

Units Produced

The total quantity of items manufactured by a company during a specific period.

Absorption Costing

An accounting method that includes all manufacturing costs, direct and indirect, in the unit cost of a product.