7 Questions
What is the main difference between the direct method and the indirect method of determining cash flows from operating activities?
The direct method considers major classes of gross cash receipts and payments, while the indirect method adjusts net profit for non-cash transactions.
Which of the following statements is true regarding the direct method of determining cash flows from operating activities?
It involves analyzing gross cash receipts and gross cash payments directly from accounting records.
In the context of the direct method, what type of information can be obtained by analyzing the cash book?
Information about cash received from trade receivables and payments to trade payables.
What is one of the adjustments made in the direct method for determining cash flows from operating activities?
Adjusting for changes in inventories and operating receivables and payables.
Which of the following is a key characteristic of the indirect method for determining cash flows from operating activities?
It begins with net profit and adjusts for non-cash items, deferrals, or accruals.
What type of items are included in the adjustments made under the indirect method for determining cash flows from operating activities?
Items that affect net profit but are not actual cash transactions.
Which of the following is NOT a component of the adjustments made under the direct method for determining cash flows from operating activities?
Items where the cash effects are associated with investing or financing activities.
Learn about the separate disclosure of cash flows arising from investing and financing activities in accounting. Understand how these activities impact the size and composition of owner's capital and borrowings.
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