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

Question

Quizplus · Accepted Answer

The direct method of preparing the statement of cash flows reports operating activities based on actual cash inflows and outflows, which provides more detailed and transparent information about the company's day-to-day operations. This method is preferred by investors and analysts who want to better understand a company's operating activities and its ability to generate cash. The indirect method, on the other hand, starts with net income and adjusts for non-cash transactions, making it more difficult to see the actual cash flows associated with operating activities.

The Direct Method of Preparing the Statement of Cash Flows