The indirect method of preparing the statement of cash flows is preferred by the FASB because it clearly relates net income to net cash provided by operating activities.

Question

Quizplus · Accepted Answer

The indirect method starts with net income and makes adjustments to relate it to operating cash flows. The FASB prefers the indirect method because it provides more detailed information about the sources and uses of cash in the company's operations. However, the primary reason for its preference is that it is easier and less costly than the direct method.

The Indirect Method of Preparing the Statement of Cash Flows