The indirect and direct methods:
A)Are used by companies about equally in actual practice.
B)Affect the presentations of operating,investing,and financing activities.
C)Arrive at different amounts for net cash flows from operating activities.
D)Are two allowable methods to present operating activities in the statement of cash flows.

Question

Quizplus · Accepted Answer

Both the indirect and direct methods are allowable methods to present operating activities in the statement of cash flows, but they differ in how operating cash flows are calculated and presented. The indirect method starts with net income and makes adjustments for non-cash expenses and changes in working capital, while the direct method reports actual cash inflows and outflows from operating activities. However, the indirect method is more commonly used in practice due to its simplicity and easier comparability across companies.

The Indirect and Direct Methods