Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?
A) The direct method
B) The indirect method
C) Both the direct and indirect methods
D) Neither the direct method nor the indirect method

Question

Quizplus · Accepted Answer

The indirect method adjusts net income to remove the effects of non-cash transactions such as deferrals and accruals for revenues and expenses. The direct method, on the other hand, lists actual cash inflows and outflows from operating activities but does not provide a reconciling of net income to cash flows from operating activities.

Which Method of Preparing the Operating Activities Section of a Statement