The indirect method of preparing the statement of cash flows ________.
A)is preferred by business over the direct method
B)provides greater clarity for users than the direct method
C)reports a greater amount of cash than the direct method
D)starts by converting net income into an accrual-based number

Question

Quizplus · Accepted Answer

The indirect method is preferred by businesses over the direct method because it is easier to prepare, using information readily available from the accrual-based financial statements. It starts with net income and adjusts for non-cash transactions and changes in working capital to arrive at cash flow from operating activities.

The Indirect Method of Preparing the Statement of Cash Flows