Question

All of the following statements related to reporting cash flows from investing and financing activities are true except Multiple Choice O Reporting of financing activities is the same under the direct method and indirect method O Changes in noncurrent liability accounts and equity accounts are analyzed to determine cash flows from financing activities Changes in noncurrent counts, current notes receivable, and current investments are analyzed to determine cash Nows from investing actives The direct method applies accrual accounting while the Indirect method applies cash basis accounting O Reporting of investing activities is the same under the direct method and indirect method

Answer 1

Answer:

All the statements are true except the following statements:

1. The direct method applies accrual accounting while the Indirect method applies cash basis accounting

Its incorrect because both direct method and indirect method give the same answer which is cash in nature. So this means that neither of the method uses accrual basis. Both methods calculates the cash that the company possesses from their operating activities. It is also wrong because the direct method uses all the cash transaction into account whereas the indirect method uses (not applies) the accrual entries to eliminate the non cash items from the profit.

Remember: The financing activities and investing activities reporting remains the same because the only difference is in the Cash flows from Operating activities reporting (Though the answer of  Cash flows from Operating activities remains the same either we use Direct Method or Indirect Method)

Also note that Direct Method and Indirect Method is only used for operating activities.