Question

The indirect method of presenting cash flow from operating activities:

Multiple Choice
a. is more difficult than the direct method to incorporate working capital changes into a financial model.
b. focuses on how cash flows deviate from a natural benchmark - net income are O c. is strongly recommended by both U.S. GAAP and IFRS.
d. presents cash transactions related to the determination of net income

Answer 1

The indirect method of presenting cash flow focuses on how cash flows deviate from the natural benchmark of net income, adjusting net income for non-cash transactions and working capital changes.

Step-by-step explanation:

The question relates to the indirect method of presenting cash flow from operating activities. The correct answer is b. focuses on how cash flows deviate from a natural benchmark - net income. This method starts with net income and adjusts for non-cash transactions and changes in working capital accounts to arrive at cash flow from operating activities. Unlike the direct method, which tallies up actual cash received and spent, the indirect method is a reconciliation process that adjusts the net income to account for the timing differences between income recognition and actual cash exchange.