Question

The indirect method of computing cash flows from operating activities adjusts net income rather than each income statement item to a cash basis.

a. True
b. False

Answer 1

The correct answer is True (A)

Step-by-step explanation:

Cash flow statements are prepared by companies using Direct or indirect methods. Both have peculiarities that make them different.

The indirect method of preparing cash flow statements is a method of computing Cash Flow from operating activities that involve editing net income compared to using the direct method since the indirect method needed adjustment of net income generated from operating activities for it to be converted into cash base while the Direct method adjusts each item in the income statement to their worth in cash, making it more accurate.

Operating cash flow is a term used to explain a type of financial cash flow where cash is made from the business operation of a company which includes points and ways cash is generated into the company account.