The Direct Method of Preparing a Statement of Cash Flows

question 21

Multiple Choice

The direct method of preparing a statement of cash flows

• A)eliminates the need for a schedule of noncash investing and financing transactions.
• B)provides a different result than the indirect method.
• C)adjusts net income for changes in current accounts.
• D)shows cash receipts from sales.

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Definitions:

Withdrawal

The act of removing funds from a bank account or the process of taking assets out of a business by its owner for personal use.

Partnership Assets

Assets owned by a partnership that are used for carrying out its business activities.

Capital Balances

The amount of money that partners or owners have invested in a business, which may change over time with the addition of profits or the deduction of losses and withdrawals.

Income-Sharing

A strategy where income is distributed between stakeholders, partners, or employees based on an agreed-upon formula, often used to motivate and reward.