Using the Direct Method,we Examine Each Account in the Income

question 56

True/False

Using the direct method,we examine each account in the income statement and convert it from an accrual amount to a cash amount.

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Definitions:

Liquidity

A measure of how quickly and easily an asset can be converted into cash without significantly affecting its price.

Average Collection Period

The average number of days it takes for a business to receive payments owed by its customers for sales made on credit.

Charge Customer

The process of recording or billing a customer for goods sold or services rendered, reflecting an obligation for payment.

Acid Test Ratio

A financial metric that measures a company's ability to pay off its current liabilities with quick assets, such as cash, marketable securities, and accounts receivable, without selling inventory.