Question

Which of the following statements about the direct method are true? (you may select more than one answer. single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. any boxes left with a question mark will be automatically graded as incorrect.)

a. all that apply all subtotals and totals (such as net income) on the income statement are converted from an accrual basis to a cash basis.
b. the direct method presents a summary of all transactions that result in either a debit or a credit to cash.
c. the direct method is prepared by adjusting each expense on the income statement from the accrual basis to the cash basis.
d. the direct method is prepared by adjusting each revenue on the income statement from the accrual basis to the cash basis.

Answer 1

the correct statements are b. the direct method presents a summary of all transactions that result in either a debit or a credit to cash. and d. the direct method is prepared by adjusting each revenue on the income statement from the accrual basis to the cash basis.

Let's evaluate each statement:

a. "All that apply all subtotals and totals (such as net income) on the income statement are converted from an accrual basis to a cash basis." - This statement is generally true for the direct method. The direct method adjusts certain items on the income statement from an accrual basis to a cash basis.

b. "The direct method presents a summary of all transactions that result in either a debit or a credit to cash." - This statement is true. The direct method focuses on cash transactions and provides a summary of cash inflows and outflows.

c. "The direct method is prepared by adjusting each expense on the income statement from the accrual basis to the cash basis." - This statement is not true. The direct method primarily adjusts revenues and certain non-cash items, not expenses.

d. "The direct method is prepared by adjusting each revenue on the income statement from the accrual basis to the cash basis." - This statement is true. The direct method adjusts revenues to reflect cash receipts rather than accruals.

So, the correct statements are b and d.