When the Operating Activities Section of the Statement of Cash

question 8

Multiple Choice

When the operating activities section of the statement of cash flows is reported using the direct method, the FASB requires:

• A) The income statement to be prepared under the cash basis of accounting.
• B) The preparation of the statement of cash flows under the indirect method be completed and reported with the statement of cash flows prepared using the direct method.
• C) Footnotes to the financial statements disclosing the difference between net income and the cash provided or used by financing activities.
• D) A reconciliation of net income to net cash provided or used by operating activities.
• E) Noncash investing and financing activities be included in the statement of cash flows.

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Definitions:

Acceptance

In contract law, an agreement to the terms of an offer, which creates a binding contract.

Bilateral

Pertains to agreements or contracts involving two parties where each side is obligated to fulfill certain duties.

Unilateral

An action or agreement in which only one party makes a promise or fulfills a requirement, without requiring a reciprocal action.

Express Agreement

A contract or agreement in which the terms are explicitly stated and agreed upon by all parties involved.