Which of the following statements about the indirect method of presenting cash flow from operations is NOT true?
A) The direct and indirect methods give the same cash flow from operations.
B) Australian companies do not need to report information about the indirect method.
C) Depreciation expense is added back to operating profit in the indirect method.
D) Decreases in accounts payable are deducted from operating profit in the indirect method.

Question

Quizplus · Accepted Answer

Australian companies are actually required to report information using the indirect method. Both the direct and indirect methods are acceptable ways to present cash flow from operations, but they may result in slightly different cash flow amounts due to the different treatment of certain items (such as depreciation). In the indirect method, depreciation expense is added back to operating profit (because it is a non-cash expense) and decreases in accounts payable are added to operating profit (because they represent an increase in cash). Therefore, statement D is also false: decreases in accounts payable are actually added to operating profit, not deducted.

Which of the Following Statements About the Indirect Method of Presenting