Which of the following statements is true?
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 direct 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 indirect method.
C) The FASB prefers the indirect method of preparing the operating activities section of the statement of cash flows.
D) Most companies use the indirect method of preparing the operating activities section of the statement of cash flows.

Question

Quizplus · Accepted Answer

Most companies use the indirect method of preparing the operating activities section of the statement of cash flows. While the direct method is theoretically preferred since it provides more detailed information, it is much more time-consuming and expensive to prepare. The FASB allows both methods but does not explicitly prefer one over the other.

Which of the Following Statements Is True