Multiple Choice
Operating activities, as reported using the indirect method on the statement of cash flows, are most closely related to which of the following?
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13. Statement of Cash Flows
Operating Activities: Indirect Method
Multiple Choice
The salary paid to the president of a company would be classified on the income statement as a(n):
A
Cost of goods sold
B
Non-operating income
C
Financing expense
D
Operating expense
Verified step by step guidance1
Understand the classification of expenses on the income statement. Expenses are typically categorized into operating expenses, cost of goods sold, non-operating income, and financing expenses.
Recognize that the salary paid to the president of a company is related to the general and administrative functions of the business, rather than production or financing activities.
Recall that operating expenses include costs incurred during the normal operations of the business, such as salaries, rent, utilities, and administrative expenses.
Differentiate operating expenses from cost of goods sold, which pertains to direct costs of producing goods, and from non-operating income or financing expenses, which are unrelated to core business operations.
Conclude that the salary paid to the president of the company is classified as an operating expense because it is part of the administrative costs necessary to run the business.
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