In developing the cash flows from operating activities, most companies in the United States
A) use the indirect method.
B) use the direct method.
C) present both the indirect and direct methods in their financial reports.
D) prepare the operating activities section on the accrual basis.

Question

Quizplus · Accepted Answer

Most companies in the United States use the indirect method to develop the cash flows from operating activities. The indirect method starts with the net income figure and adjusts it for non-cash transactions, changes in working capital, and other operating activities. This method is considered easier and less time-consuming than the direct method, which involves tracking all cash inflows and outflows. While some companies may use the direct method, it is less common. Additionally, companies may choose to present both the indirect and direct methods in their financial reports, but the indirect method is typically the primary method used. Finally, while the operating activities section is prepared on an accrual basis, this does not impact the choice between the indirect and direct methods for presenting cash flows.

In Developing the Cash Flows from Operating Activities, Most Companies