The approach to presenting cash flows from operating activities where reported net profit is adjusted for non-cash income statement items and changes in non-cash working capital accounts is known as:
A) the direct approach
B) the adjustment approach
C) the indirect approach
D) none of the above

Question

Quizplus · Accepted Answer

The approach described is known as the indirect approach to presenting cash flows from operating activities. It starts with reported net profit and makes the necessary adjustments for non-cash income statement items and changes in non-cash working capital accounts to arrive at the cash flows from operating activities. The direct approach, on the other hand, reports actual cash receipts and payments related to operating activities. The adjustment approach is not a commonly used term in financial reporting.

The Approach to Presenting Cash Flows from Operating Activities Where