The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities.

Question

Quizplus · Accepted Answer

The indirect method of preparing the statement of cash flows starts with net income and adjusts for non-cash items and changes in working capital accounts to arrive at net cash flows from operating activities. This reconciliation ensures that net income and net cash flows from operating activities are not the same, since net income includes non-cash items and does not account for changes in working capital accounts.

The Indirect Method of Preparing the Statement of Cash Flows