Question

When preparing a statement of cash flows, the following are used for which method in determining cash flows from operating activities?

1) Direct Direct
2) Direct Indirect
3) Neither Indirect
4) Indirect Direct

Answer 1

The method used to determine cash flows from operating activities can be either the direct method or the indirect method.

Step-by-step explanation:

When preparing a statement of cash flows, the method used to determine cash flows from operating activities can be either the direct method or the indirect method.

The direct method calculates cash flows from operating activities by directly recording the cash inflows and outflows from specific operating activities, such as cash receipts from customers and cash payments to suppliers.

The indirect method derives cash flows from operating activities by adjusting net income for non-cash expenses and changes in operating assets and liabilities.