If a Company Uses the Indirect Method to Determine Net

question 69

Multiple Choice

If a company uses the indirect method to determine net cash flows from operating activities:

• A)gains on the disposal of equipment must be added to net income and losses subtracted from net income.
• B)gains on the disposal of equipment must be added to net income but losses are adjusted against the original asset account.
• C)gains on the disposal of equipment must be subtracted from net income and losses added to net income.
• D)there is no entry for a gain or loss on the disposal of equipment as this is only an Investing activity.

---

Definitions:

Accounting Principles

The standardized guidelines and rules followed by accountants to record, report, and summarize financial transactions, ensuring consistency and transparency.

Income Statement

A financial report that calculates a company's performance over a specific period, summarizing revenue, expenses, and profits.

Expense Recognition Principle

An accounting principle that dictates that expenses should be recognized in the period in which they contribute to the generation of revenue.

Income Statement

A financial report that shows a company's revenues, expenses, and profits over a specific period, indicating its financial performance.