When Preparing a Statement of Changes in Financial Position Using

question 38

Multiple Choice

When preparing a statement of changes in financial position using the cash basis for defining funds, an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

• A) Funds were increased since inventory is a current asset
• B) The net increase in inventory reduced cost of goods sold but represents an assumed use of cash
• C) Inventory is an expense deducted in computing net earnings, but is not a use of funds
• D) All changes in noncash accounts must be disclosed under the all financial resources concept

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Definitions:

Clothing Store

A retail establishment that sells garments and apparel for individuals of all ages.

Housing Development

The process and business of developing land into residential properties, including homes and apartment buildings.

Profits

The financial benefit realized when revenue from business activities exceeds the expenses, costs, and taxes involved in sustaining the activity.

Planes

Large fixed-wing aircraft that are propelled forward by thrust from a jet engine or propeller, used for transporting passengers and cargo over long distances.