Which of the Following Statements Is Incorrect Regarding the Use

question 130

Multiple Choice

Which of the following statements is incorrect regarding the use of the indirect method when preparing the operating activities of the statement of cash flows?

• A) A decrease in accounts payable is deducted from net income
• B) A decrease in prepaid insurance is added to net income
• C) Gain on the retirement of bonds is deducted from net income
• D) Depreciation expense is subtracted from net income

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Definitions:

Closing Entries

The journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts.

Adjusting Entries

Accounting entries recorded at the conclusion of a financial period to properly assign income and expenses to the period they truly relate to.

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts, thereby preparing the accounts for the next period.

Journalized

Refers to the act of recording financial transactions in the company's journal as part of the accounting process.