Question

The reporting of net cash provided or used by operating activities that lists the major items of operating cash receipts, such as receipts from customers, and subtracts the major items of operating cash disbursements, such as cash paid for merchandise, is referred to as the__________.a.Direct method of reporting net cash provided or used by operating activities.b.Cash basis of accounting.c.Indirect method of reporting net cash provided or used by operating activities.d.Net method of reporting cash flows from operating activities.e.Classified statement of cash flows.

Answer 1

Answer:

a.

Explanation:

‘Cash Flow Statement’ is one of major financial statement that indicates the inflow and outflow of cash along with the reasons by categorizing each cash transaction in three activities i.e., operating, investing or financing activity. Non-cash transactions are not considered while preparing a cash flow statement.  

Operating Activities records the cash transactions involved in the operations of the business are recorded under ‘operating activities’ in the cash flow statement.  

Examples: Revenue earned, expenses incurred etc.  

There are two methods to prepare the cash flow statement. The only difference between both the methods is the way of presenting cash flow from operating activities.  

The two methods of presenting cash flow statement are:  

1. Direct method: Operating activities section under direct method reports the amount of cash received and paid by the company during the period.  
2. Indirect method: Operating activities section under indirect method reports the net income and later adjusts the transactions to convert it to cash basis of accounting.