The direct method for the preparation of the operating activities section of the statement of cash flows:
A) Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
B) Is required by the FASB.
C) Reports a different amount of cash flows from operations than if the indirect method is used.
D) Separately lists each major item of operating cash receipts and cash payments.
E) Is required if the company is a merchandiser.

Question

Quizplus · Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments, providing a detailed breakdown of the cash flows from operating activities. This method is not required by the FASB and may result in the same or different amount of cash flows from operations compared to the indirect method. Being a merchandiser does not impact the choice of method. Option A describes the indirect method.

The Direct Method for the Preparation of the Operating Activities