The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts and cash payments.

Question

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The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts (such as cash collected from customers) and cash payments (such as cash paid to suppliers and employees). This method is considered more informative than the indirect method, which involves adjusting net income for non-cash items and changes in working capital accounts to determine cash flows from operating activities.

The Direct Method of Reporting Cash Flows from Operating Activities