Although the guidance in U.S.GAAP and IFRS states a preference that companies present cash flows from operations using the indirect method, most companies present cash flows from operations as a reconciliation of net income to operating cash flow (the direct method).

Question

Quizplus · Accepted Answer

The statement is partially incorrect. While U.S. GAAP and IFRS do allow both the direct and indirect methods for reporting cash flows from operations, it's the indirect method that is more commonly used by companies, not the direct method as stated. The indirect method starts with net income and adjusts for non-cash transactions and changes in working capital to arrive at operating cash flow.

Although the Guidance in U