The direct method for the preparation of the operating activities section of the statement of cash flows:
A) Separately lists each major item of operating cash receipts and cash payments.
B) Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
C) Reports an amount of cash flows from operations different from the amound determined using the indirect method.
D) Is required if the company is a merchandiser.
E) Is required by the FASB.

Question

Quizplus · Accepted Answer

The direct method involves separately listing each major item of operating cash receipts and cash payments, rather than reporting adjustments to reconcile net income to net cash provided or used by operating activities like the indirect method does. It is not required by the FASB, and whether or not a company is a merchandiser does not affect the choice of method.

The Direct Method for the Preparation of the Operating Activities