The Method of Reporting Cash Flows from Operating Activities Under

question 64

Multiple Choice

The method of reporting cash flows from operating activities under which revenues and expenses on the income statement are adjusted to reflect the amount of cash received or expended for each item is the:

• A) direct method.
• B) indirect method.
• C) combination method.
• D) adjustment method.

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Definitions:

Consolidated Statements

Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as a single entity.

Retrospectively

Relating to the application of changes or the analysis of past events or periods in a manner that considers previous conditions or policies as if they were still in effect.

Individual Companies

Refers to separate, distinct legal business entities, as opposed to conglomerates or groups of companies under common ownership or control.

Retrospective Application Method

An accounting method that applies a new policy or correction as if it had always been in effect, adjusting past financial statements accordingly.