In Preparing a Statement of Cash Flows Under the Indirect

question 72

Multiple Choice

In preparing a statement of cash flows under the indirect method, a decrease in accounts receivable would be reported or included as a(n) :

• A) Addition to net income in the operating activities section.
• B) Deduction from net income in the operating activities section.
• C) Financing activity.
• D) Investing activity.

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Definitions:

Dividend Payout Ratio

The fraction of net income a firm pays to its stockholders in dividends, expressed as a percentage of the company's total earnings.

Retention Ratio

The proportion of earnings kept back in a company to reinvest, rather than being paid out as dividends.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without having to increase debt or equity financing.

Inventory Turnover

A ratio showing how many times a company has sold and replaced inventory over a given period.