Assume That the Balance of Accounts Payable Does Not Change

question 13

Multiple Choice

Assume that the balance of accounts payable does not change during a period.When preparing a statement of cash flows,an increase in ending inventory over beginning inventory will result in an adjustment to net income under the indirect approach because

• A)the amount of cost of goods sold is equal to the amount of cash paid for purchases.
• B)consumed inventory is an expense but not a use of funds.
• C)the amount of cost of goods sold on an accrual basis is less than the amount of cash paid for purchases of inventory.
• D)the amount of cash paid for purchases of inventory is less than the amount of cost of goods sold on an accrual basis.

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Definitions:

Unit Variable Costs

Unit variable costs are the costs that vary directly with the production volume, including costs for materials and labor that change with the level of production or service provision.

Operating Income

Revenue obtained from the main operations of a business, not including the costs of interest and taxes.

Variable Costs

Expenditures that fluctuate in direct relation to production or sales volumes, such as labor costs and materials used.

Fixed Costs

are expenses that do not change in total over a period of time, regardless of the level of production or sales volume, such as rent or salaries.