Which of the following observations concerning the comparisons between the direct and indirect approaches of presenting a cash flow statement is true?
A)The final dollar amount of cash flows from operating activities is different under the two approaches.
B)The direct approach provides a clearer picture of cash flows related to operations.
C)Authoritative bodies have generally expressed a preference for the indirect method.
D)A separate reconciliation of operating cash flows and net income is required under the indirect approach.

Question

Quizplus · Accepted Answer

The direct method provides a clearer picture of cash flows related to operations. While the final dollar amount of cash flows from operating activities may be the same under both approaches, the direct method provides a more detailed breakdown of the cash inflows and outflows related to operating activities. The authoritative bodies have expressed a preference for both methods, but the indirect method is more commonly used since it is simpler to prepare. A separate reconciliation of operating cash flows and net income is required under the indirect approach.

Which of the Following Observations Concerning the Comparisons Between the Direct