Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the
A) direct method.
B) indirect method.
C) working capital method.
D) cost-benefit method.

Question

Quizplus · Accepted Answer

The indirect method is used for preparing cash flow statements and starts with net income and makes adjustments for non-cash items such as depreciation and amortization. This method reconciles differences between net income and cash flow from operating activities. The other options (direct method, working capital method, and cost-benefit method) do not refer to specific methods for preparing cash flow statements.

Starting with Net Income and Adjusting It for Items That