Which method of preparing the statement of cash flows reconciles net income to cash flows from operating activities?
A)Direct method
B)Reconciliation method
C)Equilibrium method
D)Indirect method

Question

Quizplus · Accepted Answer

The indirect method of preparing the statement of cash flows starts with net income and makes adjustments to reconcile it to cash flows from operating activities. It is called "indirect" because it does not directly show the cash inflows and outflows from operating activities, but rather adjusts for non-cash expenses and changes in working capital accounts. The direct method, on the other hand, shows the actual cash inflows and outflows from operating activities, but is more time-consuming and less commonly used. The reconciliation method and equilibrium method are not commonly used or recognized methods of preparing the statement of cash flows.

Which Method of Preparing the Statement of Cash Flows Reconciles