Final answer:
The true statement is that many companies prefer the indirect method for preparing cash flow statements because it is easier and less costly to prepare, as it adjusts net income for non-cash items rather than itemizing all cash receipts and payments.
Step-by-step explanation:
The question is asking which statement is true concerning the preparation of cash flow statements and the methods used by companies. The correct option is A: many companies prefer the indirect method because it is easier and less costly to prepare. This is because the indirect method starts with net income and adjusts for all non-cash items and changes in working capital accounts to arrive at net cash flow from operating activities. On the other hand, the direct method requires a detailed analysis of all cash receipts and payments, which can be more time-consuming and expensive to compile.
Some might think that option B is correct, but it is not entirely accurate. The indirect method does involve adjustments for changes in noncash items, but it does not directly adjust sales revenue. Instead, it adjusts net income (which includes sales) for transactions that do not involve cash, such as depreciation, amortization, and changes in accounts receivable or payable.
Regarding option C, it is the FASB that prefers the direct method, not the indirect method. However, despite this preference, the FASB allows the usage of either method. Option D is incorrect because the direct method is also allowed for determining net cash flow from operating activities. Therefore, the mention of the correct option in the final answer is that many companies prefer the indirect method because it is easier and less costly to prepare.