Which Method of Preparing the Operating Activities Section of the Statement

question 25

Multiple Choice

Which method of preparing the operating activities section of the statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

• A) the direct method
• B) the indirect method
• C) both direct and indirect methods
• D) neither the direct method nor the indirect method

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, recognized by law as having rights and liabilities.

General Partnership

A business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a partnership agreement.

Financial Manager

A professional responsible for managing the financial health of a corporation, focusing on planning, directing investment activities, and developing strategies.