Question

Nearly all major companies in the United States use the direct method to prepare the statement of cash flows.True or False

Answer 1

Nearly all major companies in the United States use the indirect method, not the direct method, to prepare the statement of cash flows.

Step-by-step explanation:

Nearly all major companies in the United States use the indirect method to prepare the statement of cash flows, not the direct method. The indirect method starts with net income and adjusts for non-cash items to calculate the net cash flow from operating activities. On the other hand, the direct method directly reports cash inflows and outflows from operating activities.

For example, if a company receives cash from customers for sales, it would be reported as a cash inflow under the direct method, while under the indirect method, it would be shown as an adjustment to net income.

Therefore, the statement that nearly all major companies in the United States use the direct method to prepare the statement of cash flows is False.

Answer 2

False

Step-by-step explanation:

False. While the direct method is one of the two acceptable methods for preparing the statement of cash flows according to Generally Accepted Accounting Principles (GAAP) in the United States, it is not the most commonly used method. The indirect method is more commonly used, especially by larger companies.