The direct method for the preparation of the operating activities section of the statement of cash flows:
A) Separately lists each major item of operating cash receipts.
B) Separately lists each major item of operating cash payments.
C) Separately lists each major item of operating cash receipts and cash payments.
D) Reports net income and then adjusts it for items necessary to determine net cash provided or used by operating activities.
E) All of these answers are correct.

Question

Quizplus · Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments, providing a clearer and more detailed view of the sources and uses of cash during the period. This method is recommended by the FASB, but it may require more effort to prepare compared to the indirect method. Choices A and B do not give a full view of the operating activities, while choice D uses the indirect method. Choice E is not a valid answer because all choices are not correct.

The Direct Method for the Preparation of the Operating Activities