Computing cash generated from operating activities is:

Question

Quizplus · Accepted Answer

The indirect method of computing cash generated from operating activities starts with net income and then adjusts for noncash items such as depreciation, whereas the direct method reports cash inflows and outflows directly. Therefore, the indirect method considers depreciation, making option C the correct choice. Option B falsely claims that the direct method considers depreciation, which is not correct. Option A is incorrect because there are differences between the two methods, which affects how cash flows from operating activities are calculated. Option D is also incorrect, as there is a difference between the two methods, making all of the above a false statement.

Computing Cash Generated from Operating Activities Is