Final answer:
Yes, the direct method reports major classes of gross cash receipts and payments of operating activities. It gives a clear view of cash flow that the indirect method does not by adjusting net income for non-cash transactions.
Step-by-step explanation:
The statement in the question is true. The direct method of preparing the operating activities section of the statement of cash flows categorizes the cash transactions into major classes of cash receipts and cash payments. It reports the major classes of cash receipts and cash payments relating to the day-to-day operations of the company. For example, cash received from customers and cash paid to suppliers are reported as cash inflows and cash outflows, respectively, under operating activities in the direct method.
These transactions correspond to the primary revenue-generating activities of the company, such as cash received from customers and cash paid to suppliers and employees. Unlike the indirect method, which starts with net income and adjusts for non-cash items, the direct method lists the individual cash inflows and outflows, providing a clearer picture of cash movement from operating activities.