Question

Which of the following is not a reason that companies favor the indirect method of preparing the statement of cash flows?

1) It is easier to understand for investors
2) It provides more detailed information about cash flows
3) It is more widely used and accepted
4) It aligns with the accrual basis of accounting

Answer 1

The indirect method of preparing the statement of cash flows is not favored because it is easier to understand for investors.

Step-by-step explanation:

The correct answer is: 1) It is easier to understand for investors. The indirect method of preparing the statement of cash flows is favored by companies for several reasons. It aligns with the accrual basis of accounting, provides more detailed information about cash flows, and is widely used and accepted. However, it is not favored because it is easier to understand for investors. In fact, the direct method, which shows the actual cash inflows and outflows, is often considered more transparent and easier for investors to comprehend.