Question

Under which method(s) will a reconciliation of net income to cash from operating activities be presented?

1) Direct method
2) Indirect method
3) Both direct and indirect methods
4) Cannot be determined

Answer 1

The Correct option is 3). Reconciliation of net income to cash from operating activities can be presented using both direct and indirect methods to show the adjustments needed to reconcile net income with cash flow from operations.

Step-by-step explanation:

The reconciliation of net income to cash from operating activities can be presented under both the direct and indirect methods. The indirect method starts with net income and adjusts for non-cash transactions and changes in working capital to arrive at cash provided by operating activities. On the other hand, the direct method reports all cash receipts and cash payments from operating activities directly, including cash received from customers and cash paid to suppliers and employees. Regardless of the method used, companies are often required to provide a reconciliation to help users understand the difference between net income and net cash provided by operating activities.