On a Statement of Cash Flows That Uses the Indirect

question 1

Multiple Choice

On a statement of cash flows that uses the indirect approach, calculation of cash flow from operations treats depreciation as an adjustment to reported net income because:

• A)depreciation is a direct source of cash.
• B)depreciation is an outflow of cash to a reserve account for the replacement of assets.
• C)depreciation reduces net income and involves an outflow of cash.
• D)depreciation reduces net income but does not involve an outflow of cash.

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Definitions:

Apparent Authority

The impression given by a principal to a third party that an agent has the authority to act on the principal’s behalf.

Agency Relationship

A legal relationship wherein one party, the agent, is authorized to act on behalf of another party, the principal, in business transactions.

Consideration

In contract law, consideration refers to something of value that is exchanged between parties as part of an agreement, making the contract legally binding.

Apparent Authority

A situation where a person appears to have been given the power by a business to act on its behalf, even if no formal authority has been granted.