The indirect method adjusts net income for items that affected reported net income but did not affect cash.

Question

Quizplus · Accepted Answer

The indirect method of preparing the statement of cash flows adjusts net income by adding back non-cash expenses and subtracting non-cash revenues, as well as accounting for changes in current assets and liabilities that did not impact cash. This method is used to convert accrual basis net income into cash basis net income.

The Indirect Method Adjusts Net Income for Items That Affected