When a company uses the direct method to determine the cash flows from operating activities, cash flows from operating activities will:
A) be identical to the amount reported using the indirect method.
B) be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.
C) always be larger than the amount reported using the indirect method.
D) be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect methoD.
The direct method and the indirect method produce the same result for net cash provided by or used in operating activities.

Question

Quizplus · Accepted Answer

The direct method is an alternative way to calculate cash flows from operating activities, but it ultimately leads to the same result as the indirect method. Therefore, the cash flows from operating activities will be identical to the amount reported using the indirect method.

When a Company Uses the Direct Method to Determine the Cash