Why Is the Operating Activities Section of the Direct Method

question 28

Essay

Why is the operating activities section of the direct method cash flow statement just a cash-basis income statement?

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Definitions:

GAAP

Generally Accepted Accounting Principles, which are a common set of accounting rules and standards used in the United States for financial reporting.

Fully Diluted Earnings Per Share

A metric that calculates earnings per share assuming all dilutive securities such as options and convertibles have been converted to common stock.

GAAP

Generally Accepted Accounting Principles, which are the common set of standards and procedures companies in the U.S. must follow when preparing their financial statements.

Share-Based Compensation

A form of pay given to employees and executives that is based on the company's stock, intended to align their interests with those of the company's shareholders.