Which Statement Concerning the Indirect Method of Preparing a Cash

question 23

Multiple Choice

Which statement concerning the indirect method of preparing a cash flow statement is true?

• A) The indirect method is more costly to implement that the direct method.
• B) The investing and financing sections of a cash flow statement differ depending on whether the direct or indirect method of preparation is used.
• C) The direct, rather than the indirect method of preparation, is the method preferred by standard setters.
• D) With the indirect method depreciation is deducted from profit to arrive at net cash from operating activities.

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Definitions:

Required Reserves

The minimum amount of funds that a bank must hold in reserve against deposit liabilities, as mandated by central banking authorities.

Reserve Bank

A central banking institution responsible for overseeing the monetary policy, issuing currency, and regulating the banking system of a country.

Required Reserve Ratio

The fraction of deposits that a bank is required by regulation to hold in reserve and not lend out, aiming to ensure bank liquidity and stability.

Money Supply

The total amount of monetary assets available in an economy at any specific time, including cash, coins, and balances held in checking and savings accounts.