Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

Question

Quizplus · Accepted Answer

The indirect method of preparing the operating activities section of the statement of cash flows adjusts net income by adding back non-cash expenses such as depreciation and amortization, subtracting increases in current assets and adding decreases in current liabilities to remove the effects of deferrals and accruals for revenues and expenses. The direct method of preparing the operating activities section shows actual cash inflows and outflows from operating activities and is less commonly used. The balance sheet method and the retained earnings method are not methods for preparing the operating activities section of the statement of cash flows.

Which Method of Preparing the Operating Activities Section of a Statement