Which of the following statements is true?
A)The method of preparing the Operating Activities section of a statement of cash flows that adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the direct method.
B)The method of preparing the Operating Activities section of a statement of cash flows that reports major classes of gross cash receipts and cash payments for revenues and expenses is the indirect method.
C)The FASB prefers the indirect method of preparing the Operating Activities section of the statement of cash flows.
D)Most companies use the indirect method of preparing the Operating Activities section of the statement of cash flows.

Question

Quizplus · Accepted Answer

Most companies use the indirect method of preparing the Operating Activities section of the statement of cash flows, which adjusts net income for non-cash items and changes in current assets and liabilities. The direct method, which reports major classes of gross cash receipts and payments, is less commonly used. While the FASB does not express a preference for either method, it does require companies to reconcile the two methods if the direct method is used.

Which of the Following Statements Is True