Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Revenues

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Revenues

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following is a nonoperating item that requires adjustment to net income under the indirect method when preparing the statement of cash flows?

Gain on sale of equipment

Prepaid insurance

Depreciation expense

Accrued service revenue

Previous problemNext problem

Verified step by step guidance

Understand the indirect method for preparing the statement of cash flows. This method starts with net income and adjusts for non-cash items, changes in working capital, and nonoperating items to calculate cash flows from operating activities.

Identify nonoperating items. Nonoperating items are gains or losses that are not part of the core business operations, such as gains or losses from the sale of equipment.

Recognize that a 'Gain on sale of equipment' is a nonoperating item. It is included in net income but does not represent cash generated from operating activities. Therefore, it requires adjustment to net income under the indirect method.

Understand why other options do not qualify as nonoperating items: Prepaid insurance and accrued service revenue are working capital adjustments, while depreciation expense is a non-cash item that is added back to net income under the indirect method.

Adjust the net income by subtracting the gain on sale of equipment (since it increases net income but does not represent cash inflow from operations). This ensures the statement of cash flows accurately reflects cash generated from operating activities.