When a Company Uses the Direct Method to Determine the Cash

question 31

Multiple Choice

When a company uses the direct method to determine the cash flows from operating activities, cash flows from operating activities will:

• A) be identical to the amount reported using the indirect method.
• B) be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.
• C) always be larger than the amount reported using the indirect method.
• D) be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect methoD.
• The direct method and the indirect method produce the same result for net cash provided by or used in operating activities.

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Definitions:

Corporation

A business organized under state or federal statutes as a separate legal entity.

Proprietorship

A business entity owned and run by one individual, where there is no legal distinction between the owner and the business.

Partnership

An unincorporated business form consisting of two or more persons conducting business as co-owners for profit.

Service Business

A form of enterprise offering non-physical goods or services to its clients instead of tangible products.