The Direct Method for the Preparation of the Operating Activities

question 155

Multiple Choice

The direct method for the preparation of the operating activities section of the statement of cash flows:

• A)Separately lists each major item of operating cash receipts and cash payments.
• B)Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
• C)Reports a different amount of cash flows from operations than if the indirect method is used.
• D)Is required if the company is a merchandiser.
• E)Is required by the FASB.

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Definitions:

Interest

The cost of borrowing money or the return on investment capital, often expressed as a percentage rate over a period of time.

Adjusted Cash Balance

The cash balance recorded in accounting books after considering outstanding checks and deposits in transit, ensuring it matches the actual bank balance.

Check Register

A record book or electronic log used to track checks written, deposits made, and current account balances.

Bank Statement

A document or electronic record issued by a bank summarizing a customer's transactions and current balance over a specific period.