In preparing a statement of cash flows under the INDIRECT method, cash flows from operating activities
A) are always equal to accrual accounting income.
B) are calculated as the difference between revenues and expenses.
C) can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash.
D) can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

Question

Quizplus · Accepted Answer

Option C is correct because the indirect method starts with net income and then adjusts for items that affected reported net income but did not affect cash. This includes adding back non-cash expenses (like depreciation) and adjusting for changes in working capital accounts.

In Preparing a Statement of Cash Flows Under the INDIRECT