The method of reporting cash flows from operating activities under which income is adjusted for transactions impacting both net income and cash flows, but in different ways, is called the
A) direct method.
B) indirect method.
C) combination method.
D) adjusted method.

Question

Quizplus · Accepted Answer

The indirect method adjusts net income for non-cash expenses and for changes in current assets and liabilities, which impact both net income and cash flows but in different ways. This results in the operating cash flows for the period. The direct method reports cash inflows and outflows from operating activities directly without adjusting net income. The combination method is not a commonly used method, and there is no such method as the adjusted method. Therefore, the best choice is B, the indirect method.

The Method of Reporting Cash Flows from Operating Activities Under