The indirect method of reporting
A)is preferred by the Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards No.95, "Statement of Cash Flows."
B)shows a reconciliation between net income and cash flow from operations either at the bottom of the statement of cash flows or in a separate note.
C)reports the amounts of cash received from customers less cash disbursed to various suppliers, employees, lenders for interest payments, and taxing authorities.
D)reports the net income for a period and then adjusts the net income to convert revenues to cash received from customers and to convert expenses to cash disbursed to various suppliers of goods and services.
E)includes all of the above.

Question

Quizplus · Accepted Answer

The indirect method of reporting starts with net income and then makes adjustments to convert revenues and expenses to cash received and cash disbursed respectively. This is different from the direct method which reports actual cash inflows and outflows. The indirect method is required by FASB Statement of Financial Accounting Standards No.95 and shows a reconciliation between net income and cash flow from operations either at the bottom of the statement of cash flows or in a separate note. However, it does not report the actual amounts of cash received from customers or disbursed to suppliers, employees, lenders, and taxing authorities.

The Indirect Method of Reporting