Under the direct method of preparing the statement of cash flows, which statement is correct regarding the method of computing interest revenue?
A) Sales plus a decrease in interest receivable
B) Interest revenue plus a decrease in interest receivable
C) Interest revenue plus an increase in interest receivable
D) Interest revenue less a decrease in interest receivable

Question

Quizplus · Accepted Answer

Under the direct method of preparing the statement of cash flows, interest revenue is computed by adding interest revenue earned during the period to any decrease in interest receivable. This is because a decrease in interest receivable implies that interest has been earned but not yet received, which is considered cash received from operating activities. Hence, option B is correct as it includes both components of computing interest revenue under the direct method.

Under the Direct Method of Preparing the Statement of Cash