Final answer:
The statement is false; the indirect method of cash flow projection is not simply about subtracting cash out from cash in but also includes various adjustments for non-cash transactions and changes in working capital.
Step-by-step explanation:
The statement that the indirect method of projecting cash flow uses a simple determination of cash in less cash out is false. The indirect method starts with net income and adjusts for changes in balance sheet items that affect available cash. While it does eventually reconcile total cash inflows and outflows, its approach is not as straightforward as simply subtracting cash out from cash in.
The formula for the indirect method of cash flow statement typically includes adjustments to net income for:
- Depreciation and amortization
- Changes in accounts receivable
- Changes in inventory
- Changes in accounts payable
- Changes in income tax payable
- Changes in any other assets/liabilities
These adjustments convert the net income from an accrual basis to a cash basis, reflecting the actual cash generated or used during the period.