Which of the following statements regarding the calculation of cash flows from operating activities under the direct method is true?
A) When the direct method is used, each revenue and expense account on the income statement is individually adjusted to calculate net cash flows from operating activities.
B) Noncash revenues and expenses must be included in net cash flows from operating activities when preparing a Statement of Cash Flows using the direct method.
C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the

Question

Quizplus · Accepted Answer

When using the direct method to calculate cash flows from operating activities, each revenue and expense account on the income statement is individually adjusted to calculate net cash flows from operating activities. This means that the actual cash inflows and outflows related to each revenue and expense item are identified and used to calculate the net cash flows from operating activities. Noncash revenues and expenses are not included in net cash flows from operating activities under the direct method. Depreciation is not reported as a cash inflow in the cash flows from operating activities under the direct method. A loss on the sale of a long-term asset is not subtracted or added to cash flows from operating activities.

Which of the Following Statements Regarding the Calculation of Cash