When a statement of cash flows is prepared using the indirect method,
A)net income is the starting point in determining cash flows from operations.
B)cash paid for dividends is not included.
C)the increase in cash is different than when the direct method is used.
D)the amount of cash collected from customers is calculated.

Question

Quizplus · Accepted Answer

The indirect method starts with net income and makes adjustments to convert accrual-based income to cash-based income for determining cash flows from operations. Cash paid for dividends may or may not be included depending on whether it is considered a financing or operating activity. The increase in cash should be the same regardless of whether the direct or indirect method is used. The amount of cash collected from customers is calculated using the direct method.

When a Statement of Cash Flows Is Prepared Using the Indirect