The Indirect and Direct Methods

question 36

Multiple Choice

The indirect and direct methods:

• A)are used by companies about equally in actual practice.
• B)affect the presentations of operating,investing,and financing activities.
• C)arrive at different amounts for net cash flows from operating activities.
• D)are two allowable methods to present operating activities in the statement of cash flows.

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Definitions:

Capitalize

The accounting practice of recording a cost or expense on the balance sheet for the purposes of delaying full recognition of the expense over time through depreciation or amortization.

Depreciate

To allocate the cost of a tangible asset over its useful life, reflecting the decline in the asset's value due to use and wear and tear.

Financial Statements

Reports that summarize the financial performance, position, and cash flows of a business over a specific period of time.

Endowment Contribution

A donation made to an institution or organization with the stipulation that it be invested and the principal remain intact, while the investment income can be used for organizational purposes.