The indirect method for the preparation of the operating activities section of the statement of cash flows
A)Separately lists each major item of operating cash receipts
B)Separately lists each major item of operating cash payments
C)Reports profit and then adjusts it for items necessary to determine net cash provided or used by operating activities
D)Separately lists each major item of operating cash receipts and payments
E)All of these

Question

Quizplus · Accepted Answer

The indirect method adjusts the net income for items necessary to determine net cash provided or used by operating activities. It does not separately list each major item of operating cash receipts or payments, which is what the direct method does. Reporting profit is a necessary step in the indirect method, but it is not the only step. Therefore, choice C is the best answer.

The Indirect Method for the Preparation of the Operating Activities