Final answer:
The answer is True. A statement of cash flows begins with net income and adjusts for non-cash items and working capital changes to arrive at net cash provided by operating activities when using the indirect method.
Step-by-step explanation:
The statement True is correct. A statement of cash flows indeed starts with net income and then adjusts for non-cash transactions and changes in working capital components when the indirect method is used. This method takes into account depreciation, amortization, gains, losses, and changes in inventory, accounts receivable, and accounts payable, among others, to convert the net income from the accrual basis of accounting to cash basis.
Items that are added back to or deducted from net income are those that affected reported net income but did not affect cash. For example, depreciation expense is a non-cash charge against income, and thus it is added back to net income in the statement of cash flows. On the other hand, an increase in accounts receivable would be deducted from net income, because even though sales might have been recorded (increasing net income), the company has not yet received the cash from those sales.