The difference between the indirect and direct methods of preparing a statement of cash flows is reflected in the:
A) manufacturing activities section.
B) investing activities section.
C) operating activities section.
D) selling activities section.

Question

Quizplus · Accepted Answer

The difference between the indirect and direct methods of preparing a statement of cash flows is reflected in the operating activities section. The indirect method adjusts net income for non-cash items and changes in working capital to arrive at cash flows from operating activities, while the direct method shows cash receipts and payments directly related to operating activities. The investing activities section shows cash flows related to the purchase and sale of long-term assets, and the financing activities section shows cash flows related to borrowing and issuing equity. The selling activities section does not exist as a separate section in the statement of cash flows.

The Difference Between the Indirect and Direct Methods of Preparing