Regarding the direct and indirect methods of preparing the statement of cash flows,which of the following statements is TRUE?
A) The indirect method and the direct method will produce a different amount of net cash provided by investing activities.
B) The indirect method starts with net income and adjusts it to net cash provided by (used for) operating activities.
C) The direct and indirect methods include different types of cash flows in the investing activities section.
D) The indirect method includes all non-cash activities, whereas the direct method includes only the cash activities.

Question

Quizplus · Accepted Answer

The indirect method starts with net income and adjusts it to net cash provided by (used for) operating activities. The direct method shows actual cash inflows and outflows, while the indirect method adjusts net income for non-cash items to arrive at net cash flow from operating activities. The two methods will produce the same amount of net cash provided by operating activities, but may differ in the amounts reported for investing and financing activities. The direct and indirect methods include the same types of cash flows in the investing and financing activities sections.

Regarding the Direct and Indirect Methods of Preparing the Statement