A cash flow statement for an entity calculates the cash flow from operations by showing cash collections and cash disbursements related to operations.What method of calculating cash flow from operations are they using?

Question

Quizplus · Accepted Answer

The direct method of calculating cash flow from operations involves showing the actual cash inflows and outflows related to operating activities, such as cash collections from customers and cash paid to suppliers. This is in contrast to the indirect method, which starts with net income and adjusts for non-cash transactions and changes in working capital to arrive at cash flow from operations. Therefore, since the question states that the cash flow statement shows cash collections and cash disbursements related to operations, it is using the direct method of calculating cash flow from operations.

A Cash Flow Statement for an Entity Calculates the Cash