Question

Which of the following statements is correct?

a. The indirect method starts with income before extraordinary items.
b. The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the statement of cash flows.
d. All of these.

Answer 1

The direct method is more consistent with the primary purpose of the statement of cash flows.

Step-by-step explanation:

The correct statement among the options is (c) The direct method is more consistent with the primary purpose of the statement of cash flows. The direct method is one of the two methods used to prepare the statement of cash flows, with the other being the indirect method. The direct method presents the cash inflows and cash outflows directly, while the indirect method begins with net income before extraordinary items.