When the operating activities section of the statement of cash flows is reported using the direct method:
A)Net income is adjusted for changes in noncurrent assets and noncurrent liabilities.
B)Operating cash receipts minus operating cash payments equals net cash provided (used by)operating activities.
C)Footnotes to the financial statements disclose the difference between net income and the cash provided or used by financing activities.
D)The income statement is prepared under the cash basis of accounting.
E)Noncash investing and financing activities is included in the statement of cash flows.

Question

Quizplus · Accepted Answer

The direct method of reporting the operating activities section of the statement of cash flows involves subtracting operating cash payments from operating cash receipts to arrive at the net cash provided or used by operating activities. This method provides more detail about the sources and uses of cash during the reporting period. A is incorrect because adjustments to net income for changes in noncurrent assets and liabilities are primarily made when using the indirect method. C is incorrect because the difference between net income and the cash provided or used by financing activities is disclosed in the reconciliation section of the statement of cash flows. D is incorrect because the income statement is prepared under the accrual basis of accounting. E is incorrect because noncash investing and financing activities are reported in a separate section of the statement of cash flows.

When the Operating Activities Section of the Statement of Cash