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 a different amount of cash flows from operations than if the indirect method is used.
D)Is required if the company is a merchandiser.
E)Is required by the FASB.

Question

Quizplus · Accepted Answer

The direct method separately lists each major item of operating cash receipts and cash payments. It is one of the two methods used for preparing the operating activities section of the statement of cash flows, the other being the indirect method. The direct method does not report adjustments to reconcile net income to net cash provided or used by operating activities in the statement. While the indirect method is required by the FASB, the direct method is not required but is an acceptable alternative.

The Direct Method for the Preparation of the Operating Activities