Question

Which of the following statements regarding the direct and indirect methods of reporting cash flow from operating activities is false? Multiple Choice Although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods. Under the indirect method, the computation of net cash flow from operating activities begins with net income as shown in the income statement. The FASB permits both the direct and the indirect methods, but has expressed a preference for the direct method. The direct method shows the specific cash inflows and outflows constituting the operating activities of the business.

Answer 1

Answer:

a) although both methods result in the same net increase or decrease in cash for the year, net cash flow from operating activities will be different under the two methods

Explanation:

Using the indirect method, computation of cash flow from operating activities begins with net income as shown in the income statement. The FASB also permits both methods but has expressed a preference for the direct method and the direct method shows the specific cash inflow and outflows for each operating activities of the business.

This option that does not align with the differences between the 2 methods is that the cash flow reported under direct and indirect method for operating activities would always remain the same notwithstanding the method used.