When the direct method is used in determining cash provided by operating activities, users of the statement of cash flows are unable to reconcile the net income to the net cash provided by operations because this is only provided when the indirect method is used.

Question

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The direct method still allows users to reconcile net income to net cash provided by operations because companies that use the direct method are required to provide a reconciliation of net income to net cash provided by operating activities, typically in a separate schedule.

When the Direct Method Is Used in Determining Cash Provided