Which of the Following Statements About the Calculation of Cash

question 171

Multiple Choice

Which of the following statements about the calculation of cash flows from operating activities under the direct method is correct?

• A) When the direct method is used, each revenue and expense account on the income statement is individually examined to calculate the cash flows from operating activities.
• B) Noncash revenues and expenses must be included in cash flows from operating activities when preparing a statement of cash flows using the direct method.
• C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
• D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the direct method is useD.
• The direct method converts revenues to cash receipts and expenses to cash disbursements in order to determine the net cash flow provided by operating activities. Noncash revenues and expenses, including gains and losses, are not used in the calculation of cash flows from operating activities using the direct methoD.

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