Two methods are available to prepare the Operating Activities section of a statement of cash flows.Which of the following statements regarding these two methods is false?
A)If a company uses the indirect method,it must separately disclose the cash payments made for interest and income taxes.
B)If a company uses the direct method,it must present a separate schedule that reconciles net income to net cash from operating activities.
C)Advocates of the direct method believe that the indirect method reveals too much by telling readers gross amounts of cash receipts and cash payments from operations.
D)The FASB prefers the direct method,while most companies use the indirect method in practice.

Question

Quizplus · Accepted Answer

The statement in C is false because advocates of the direct method believe it provides more useful information by showing gross cash receipts and payments, whereas the indirect method does not reveal these gross amounts, focusing instead on adjustments to net income to arrive at net cash from operating activities.

Two Methods Are Available to Prepare the Operating Activities Section