The direct method of preparing the statement of cash flows is preferred primarily because of the way it reports:
A)investing activities.
B)financing activities.
C)operating activities.
D)noncash activities.

Question

Quizplus · Accepted Answer

The direct method of preparing the statement of cash flows provides more detailed and specific information about operating cash flows compared to the indirect method. This is because it reports actual cash inflows and outflows from operating activities. The indirect method, on the other hand, starts with net income and adjusts for non-cash items, making it less transparent about operating cash flows. The direct method does report investing and financing activities as well, but the primary benefit is the clear and concise reporting of operating activities. Non-cash activities are also included in both methods.

The Direct Method of Preparing the Statement of Cash Flows