Asked by Louca Kaoulla on Jun 18, 2024
Verified
A company calculates its cash flows from operating activities as profit +/- accruals.This is:
A) the direct method.
B) the indirect method.
C) neither the direct or the indirect method.
D) none of the above.
Accruals
Accounting method that records revenues and expenses when they are earned or incurred, regardless of when the cash transaction occurs.
Indirect Method
A method used to prepare the cash flow statement where net income is adjusted for changes in balance sheet accounts to calculate the cash from operating activities.
- Identify the distinctions between the direct and indirect techniques for computing cash flows from operating activities.
Verified Answer
MV
Miguel VargasJun 19, 2024
Final Answer :
B
Explanation :
The formula of calculating cash flows from operating activities as profit +/- accruals is indicative of the indirect method of cash flow statement preparation. The direct method involves calculating cash inflows and outflows directly from operating activities without using accruals. Therefore, option B is the correct choice.
Learning Objectives
- Identify the distinctions between the direct and indirect techniques for computing cash flows from operating activities.
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