The direct method of preparing the statement of cash flows is preferred by the Financial Accounting Standards Board 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 is preferred by the Financial Accounting Standards Board primarily because it reports operating activities directly, showing the actual cash inflows and outflows of the business, which provides more useful information to investors and analysts. The indirect method reconciles net income to net cash flows from operating activities, which may be less transparent and informative than the direct method. The direct method also reports investing and financing activities and noncash activities, but the primary reason for preferring it is its reporting of operating activities.

The Direct Method of Preparing the Statement of Cash Flows