What is the difference between the direct method and the indirect method of presenting the cash flow from operations?
A) The direct method is more reliable since it adjusts net income to reflect the cash flow from operations
B) The indirect method lists all cash-in versus cash-out accounts in determining the cash flow from operations
C) The direct method is the most popular method of determining the cash flow from operations.
D) The indirect method adjusts net income to reconcile it to net cash flow from operating activities.

Question

Quizplus · Accepted Answer

The main difference between the direct method and the indirect method of presenting the cash flow from operations is that the direct method presents actual cash inflows and outflows from operating activities, while the indirect method starts with net income and adjusts it to reconcile it to net cash flow from operating activities. Therefore, option D is correct as it correctly explains the difference between the two methods. Option A is incorrect because while the direct method is considered more reliable, it is not because it adjusts net income to reflect the cash flow from operations. Option B is incorrect because it incorrectly describes the indirect method. Option C is also incorrect because the popularity of the two methods may vary by company and industry.

What Is the Difference Between the Direct Method and the Indirect