The method that starts with net income and adjusts it for items that affect net income, but do not affect cash is called the:
A) lower-of-cost or market method.
B) direct method.
C) indirect method.
D) gross profit method.

Question

Quizplus · Accepted Answer

The method that starts with net income and adjusts for items that affect net income but do not affect cash is called the indirect method. This method reconciles differences between net income and net cash flow from operating activities by adjusting net income for non-cash items, such as depreciation and changes in current assets and liabilities.

The Method That Starts with Net Income and Adjusts It