Question

Which one of the following statements is not true about statements of cash flows prepared according to U.S. GAAP?a. The operating section of the indirect method starts with the net income of the periodb. In the indirect method statement, the period's depreciation is added to net income because it is a source of cashc. Interest payments are included in the operating section of the direct method statementd. The investing section of the direct method statement for a period is identical to the investing section of the indirect method statement for the same period

Answer 1

Answer:

The correct answer is b. In the indirect method statement, the period's depreciation is added to net income because it is a source of cash

Explanation:

Indirect method make adjustment to reconcile the net income to cash. It depends on the account if it is added or subtracted to net income.

We are going to analyze the options

a. The operating section of the indirect method starts with the net income of the period TRUE

b. In the indirect method statement, the period's depreciation is added to net income because it is a source of cash

FALSE,  depreciation is not a source of cash

c. Interest payments are included in the operating section of the direct method statement

TRUE

d. The investing section of the direct method statement for a period is identical to the investing section of the indirect method statement for the same period TRUE