Question:
Distinguish between the direct method and the indirect method for reporting the results of operating
activities in the statement of cash flows.
Answer:
The direct method of reporting cash flows from operating activities presents the cash effect of each
operating activity directly on the statement of cash flows. The indirect method of reporting cash flows
from operating activities is derived indirectly, by starting with reported net income and adding and
subtracting items to convert that amount to a cash basis.
Distinguish between the direct method and the indirect method for reporting the results of operating
activities in the statement of cash flows.
Answer:
The direct method of reporting cash flows from operating activities presents the cash effect of each
operating activity directly on the statement of cash flows. The indirect method of reporting cash flows
from operating activities is derived indirectly, by starting with reported net income and adding and
subtracting items to convert that amount to a cash basis.
