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Assume That a Company Chooses the Indirect Method to Determine

question 157

Essay

Assume that a company chooses the indirect method to determine net cash flows from operating activities.
Required:
Part a.Explain why net income is the starting point when the indirect method is used to determine cash flows from operating activities.
Part b.Briefly explain why a company's net income is most likely different in amount than its cash flows from operating activities.


Definitions:

Jamestown

The first permanent English settlement in North America, founded in Virginia in 1607, playing a significant role in the history of the United States.

New World

Historically refers to the Western Hemisphere, including the Americas, discovered by European navigators in the late 15th century.

Virginia Company

A joint-stock company chartered by James I of England in 1606 to establish settlements on the coast of North America.

Massachusetts Company

An English stock company chartered in 1629 for the colonization of Massachusetts Bay in New England and played a central role in the settlement of the region by Puritans.

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