Which of the following statements is false? A) The method of preparing the operating activities section of a statement of cash flows which adjusts net income to remove the effects of deferrals and accruals for revenues and expenses is the indirect method. B) The method of preparing the operating activities section of a statement of cash flows which reports major classes of gross cash receipts and cash payments for revenues and expenses is the direct method. C) The FASB prefers the direct method of preparing the operating activities section of the statement of cash flows. D) Most companies use the direct method of preparing the operating activities section of the statement of cash flows.

Question

Quizplus · Accepted Answer

The false statement is D, as most companies actually use the indirect method of preparing the operating activities section of the statement of cash flows. While the FASB prefers the direct method (statement C), it is not commonly used due to its higher cost and complexity. Statement A is true, as the indirect method adjusts net income for non-cash items such as depreciation, deferred taxes, and changes in working capital. Statement B is also true, as the direct method reports cash receipts and payments directly related to operating activities.

Which of the Following Statements Is false