Question

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

Gross Accounts Receivable Net Accounts Receivable
a. Indirect Direct
b. Direct Indirect
c. Direct Direct
d. Neither Indirect

Answer 1

Statement of cash flows' Gross Accounts Receivable aligns with the direct method, whereas Net Accounts Receivable aligns with the indirect method. The direct method details specific cash flow items, while the indirect method adjusts net income by balance sheet changes.

Step-by-step explanation:

When preparing a statement of cash flows, the use of Gross Accounts Receivable is associated with the direct method, while Net Accounts Receivable is associated with the indirect method. The direct method presents the specific cash flows associated with items that affect cash flow, such as cash received from customers and cash paid to suppliers and employees. On the other hand, the indirect method adjusts net income for changes in balance sheet items to calculate the cash from operating activities.