The Indirect Method of Preparing the Statement of Cash Flows

question 17

Multiple Choice

The indirect method of preparing the statement of cash flows:

• A) is more commonly used in practice than the direct method
• B) is preferred by the Accounting Standards Board over the direct method
• C) produces a different amount for cash flows from operating activities than the direct method
• D) produces a different amount for cash flows from investing activities than the direct method

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Definitions:

Self-Serving Bias

The common human tendency to attribute success to personal characteristics and failures to external factors, thereby protecting self-esteem.

Defensive Attribution

A cognitive bias where individuals attribute causes of accidents or misfortunes to external factors when involving others but to internal factors when it involves themselves, often to shield their ego.

Fundamental Attribution Bias

The tendency to overemphasize personality-based explanations for behaviors observed in others while underemphasizing the role of external factors.

Self-Effacing Bias

A tendency to downplay one's own successes or positive traits, often attributing them to external factors.