The Indirect Method and the Direct Method of Preparing the Statement

question 102

Multiple Choice

The indirect method and the direct method of preparing the statement of cash flows

• A)always produce the same totals for net cash from operating activities.
• B)sometimes produce the same totals for net cash from operating activities.
• C)have different totals for net cash from financing activities.
• D)have different totals for net cash from investing activities.
• E)have different answers for the change in cash.

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Definitions:

Sales on Account

Transactions in which revenue is accounted for at the time of sale, but payment is deferred to a later date.

Operating Cycle

The period between the acquisition of inventory and the collection of cash from receivables, indicating the efficiency of a company's operations.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations based on its earnings before interest and taxes (EBIT).

Income Statement

A financial statement that shows a company's revenues and expenses, ultimately revealing the net profit or loss for a specified period.