In developing the cash flows from operating activities most companies in the U. S.
A) use the direct method.
B) use the indirect method.
C) present both the indirect and direct methods in their financial reports.
D) prepare the operating activities section on the accrual basis.

Question

Quizplus · Accepted Answer

The indirect method is the most commonly used method for developing the cash flows from operating activities in the U.S. It starts with net income, and then makes adjustments for non-cash transactions and changes in working capital accounts to arrive at the cash flows from operating activities. While some companies may also include the direct method in their financial reports, the indirect method is the primary method used for reporting cash flows from operating activities. Companies prepare the operating activities section on the accrual basis to reconcile their net income to the cash flows from operating activities.

In Developing the Cash Flows from Operating Activities Most Companies