Which method of preparing the Operating Activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?
A)The direct method
B)The indirect method
C)Both the direct and indirect methods
D)Neither the direct method nor the indirect method

Question

Quizplus · Accepted Answer

The indirect method of preparing the Operating Activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses. It starts with net income and then makes adjustments for non-cash charges like depreciation and changes in current assets and liabilities to arrive at the operating cash flow. The direct method also adjusts for non-cash charges but reports the actual cash receipts and payments for operating activities instead of starting with net income.

Which Method of Preparing the Operating Activities Section of a Statement