While the indirect method is prevalent in the construction of cash flow statements in the U.S., why might a firm choose to construct its cash flow statement using the direct method?
A)The direct method will always show a higher net change in cash.
B)The direct method is usually easier for users to understand.
C)The direct method is required by some industries.
D)The direct method will always make the firm's management look better.
E)None of the above answer choices is correct.

Question

Quizplus · Accepted Answer

While the indirect method is more commonly used in the U.S., some firms may choose to use the direct method if they believe it is easier for users to understand. This can be particularly true for smaller or simpler companies where there may not be as many adjustments needed for the indirect method. None of the other answer choices are accurate statements about the direct method.

While the Indirect Method Is Prevalent in the Construction of Cash