The Bottom-Up Approach to Computing the Operating Cash Flow Applies

question 57

Multiple Choice

The bottom-up approach to computing the operating cash flow applies only when:

• A) both the depreciation expense and the interest expense are equal to zero.
• B) the interest expense is equal to zero.
• C) the project is a cost-cutting project.
• D) no fixed assets are required for a project.
• E) both taxes and the interest expense are equal to zero.

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Definitions:

Indirect Approach

A methodology used in financial reporting, specifically in the cash flow statement, where net income is adjusted for changes in balance sheet accounts to reflect the cash transactions.

Investing Activities

Financial transactions and events related to acquiring or disposing of investments, property, plant, and equipment.

Financing Activities

Transactions involving ways in which a business obtains and repays capital, including debt, equity, and dividend payments.

Indirect Method

An approach used in cash flow statement preparation, adjusting net income for non-cash transactions, deferrals, and accruals to calculate operating cash flow.