Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?
A)the direct method
B)the indirect method
C)Both the direct and indirect methods.
D)Neither the direct method nor the indirect method.

Question

Quizplus · Accepted Answer

The indirect method adjusts net income by adding back non-cash expenses and deductions and removing non-cash revenue and additions. This includes adjusting for deferrals and accruals of revenues and expenses. The direct method reports actual cash inflows and outflows from operating activities, but does not necessarily remove the effects of deferrals and accruals. Therefore, the indirect method is the correct choice in this case.

Which Method of Preparing the Operating Activities Section of a Statement