Using the indirect method for preparing a cash flow statement, income flows are converted:
A) from a cash basis to an accrual basis.
B) from an accrual basis to a cash basis.
C) from a historical cost basis to a cash basis.
D) from a transaction basis to an accrual basis.

Question

Quizplus · Accepted Answer

The indirect method for preparing a cash flow statement involves adjusting net income from an accrual basis, where revenues and expenses are recorded when they are earned or incurred regardless of cash movement, to a cash basis, where revenues and expenses are recorded only when cash is received or paid. This adjustment is necessary to show the actual cash inflows and outflows during the period.

Using the Indirect Method for Preparing a Cash Flow Statement