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:

Double-Entry Accounting

An accounting system that records each transaction with equal and opposite effects in at least two different accounts, ensuring accuracy.

Debits and Credits

The fundamental elements of accounting that represent the entries made in accounts to reflect increases or decreases in balances.

Memorized Transactions

Transactions that are saved in the accounting system for future use, allowing for quick recording of recurring expenses, invoices, or payments.

Saved Transactions

Transactions that have been recorded and stored in a financial system for future reference or use.