The direct method requires a schedule reconciling net operating cash flow with net income.

Question

Quizplus · Accepted Answer

The direct method of preparing the statement of cash flows reconciles net operating cash flow with net income by adjusting for non-cash items such as depreciation and changes in current assets and liabilities. This is in contrast to the indirect method, which starts with net income and makes adjustments to arrive at net operating cash flow.

The Direct Method Requires a Schedule Reconciling Net Operating Cash