Which method of preparing the operating activities section of the statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?
A) the direct method
B) the indirect method
C) both direct and indirect methods
D) neither the direct method nor the indirect method

Question

Quizplus · Accepted Answer

The indirect method adjusts net income by adding back non-cash expenses and adjusting for changes in current assets and liabilities related to operating activities, including deferrals and accruals for revenues and expenses. The direct method also adjusts for these items, but it requires detailed information about cash receipts and payments which may not be readily available for all companies. Therefore, the indirect method is the best choice for most companies.

Which Method of Preparing the Operating Activities Section of the Statement