Which of the following statements regarding use of the direct and indirect methods of determining cash flows from operating activities is incorrect?
A)The indirect method starts with net income.
B)The direct method calculates cash collected from customers.
C)The majority of U.S.companies use the indirect method.
D)The FASB recommends use of the indirect methoD.The FASB recommends use of the direct method.

Question

Quizplus · Accepted Answer

The statement that the FASB recommends use of the indirect method is incorrect. The FASB actually recommends the use of either method, but prefers the direct method as it provides more detailed information about the underlying operating activities. However, many companies still choose to use the indirect method due to its simplicity and the fact that it is more commonly used and understood.

Which of the Following Statements Regarding Use of the Direct