Which of the Following Correctly Describes a Difference Between the Direct

question 23

Multiple Choice

Which of the following correctly describes a difference between the direct method and the indirect method of computing operating cash flow?

• A) The direct method is used when accounting records are kept on a cash basis; the indirect method is used when accounting records are maintained on an accrual basis.
• B) The direct method may be used only when a company maintains special journals for cash receipts and cash disbursements; the indirect method is used in all other situations.
• C) Both the direct and the indirect methods result in the same net cash from operating activities, but the format of this section of the statement of cash flows is different under the alternative methods.
• D) The direct method is used when all accounting records and bank statements are available; the indirect method is used when some accounting records or documents are missing or have been destroyed.
• Essay Questions

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Definitions:

Purely Competitive Firm

A business that operates in a market with many buyers and sellers, where each has a negligible impact on price and product homogeneity prevails.

Unimpeded Entry

A situation in a market where there are no obstacles preventing new competitors from entering and competing.

MR = MC Rule

A principle in economics stating that profit maximization occurs when marginal revenue equals marginal cost.

Short Run

A period in economics where at least one input is fixed and cannot be changed.