An important distinction between the direct method and the indirect method of preparing a statement of cash flows is that: a The format of the section computing net cash flow from operating activities is different under the two methods. b The direct method reconciles accrual-based net income with net cash flow from operations; the indirect method shows the specific cash inflows and outflows constituting the operating activities. c The direct method results in a lower (more conservative) figure for net cash flow from operating activities than does the indirect method. d Only those statements of cash flows prepared using the direct method are in accordance with generally accepted accounting principles as set forth by the FASB.
An important distinction between the direct method and the indirect method of preparing a statement of
a The format of the section computing net cash flow from operating activities is different under the two methods.
b The direct method reconciles accrual-based net income with net cash flow from operations; the indirect method shows the specific
c The direct method results in a lower (more conservative) figure for net cash flow from operating activities than does the indirect method.
d Only those statements of cash flows prepared using the direct method are in accordance with generally accepted accounting principles as set forth by the FASB.
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