All of the Following Are Arguments in Favor of Using

question 48

Multiple Choice

All of the following are arguments in favor of using the indirect (reconciliation) method as opposed to the direct method for reporting a statement of cash flows except:

• A)By providing a reconciliation between net income and cash provided by operations, the differences are highlighted.
• B)The direct method is nothing more than a cash basis income statement which will confuse and create uncertainty for financial statement users who are familiar with the accrual-based income statements.
• C)The direct method would probably lead to additional preparation cost because the financial records are not maintained on a cash basis.
• D)The indirect method shows higher quality cash flows from investing and financing activities.

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Definitions:

Total Cost Curve

Represents the total economic cost of production, which is the sum of fixed and variable costs at different levels of output.

Accountants

Professionals who perform accounting functions such as audits, financial statement analysis, and advisories on financial transactions and tax strategies.

Opportunity Costs

The value of the next best alternative foregone as the result of making a decision.

Explicit Cost

The direct, out-of-pocket payment made by businesses for the use of resources.