Current GAAP requires firms to use the direct method when preparing the operating activities section of the statement of cash flows because it is more informative and transparent.

Question

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Current GAAP allows firms to use either the direct method or indirect method when preparing the operating activities section of the statement of cash flows. While the direct method is considered more informative and transparent, it is also more time-consuming and costly to prepare. As a result, many firms continue to use the indirect method.

Current GAAP Requires Firms to Use the Direct Method When