When preparing the operating activities section of the statement of cash flows, both FASB and IASB prefer the direct method over the indirect method.

Question

Quizplus · Accepted Answer

FASB and IASB both prefer the direct method over the indirect method because it provides more transparency and is easier to understand. The direct method shows the actual cash inflows and outflows from operating activities, while the indirect method reconciles net income to net cash flow from operating activities.

When Preparing the Operating Activities Section of the Statement of Cash