During the Year the Balance in the Accounts Payable Account

question 8

Multiple Choice

During the year the balance in the accounts payable account decreased by $8,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:

• A) deduct the $8,000 from the sales revenue reported on the income statement.
• B) add the $8,000 to the sales revenue reported on the income statement.
• C) deduct the $8,000 from the cost of goods sold reported on the income statement.
• D) add the $8,000 to the cost of goods sold reported on the income statement.

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Definitions:

Break-Even Sales

The amount of revenue needed to cover total costs, at which point a business neither makes a profit nor incurs a loss.

Margin of Safety

Represents the difference between actual or planned sales and the break-even sales, indicating the amount by which sales can drop before the business incurs a loss.

Contribution Margin Ratio

A financial metric that measures the proportion of sales revenue that exceeds variable costs, indicating how much revenue contributes to fixed costs and profit.

Variable Costs

Costs that vary in direct proportion to changes in levels of an activity or production volume.