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Basic Question 2 of 11
Which of the following statement(s) is (are) true?
II. When the statement of cash flows is completed, the net cash flows from operating activities should be equal to the net income shown on an accrual-basis income statement.
I. The indirect method of preparing net cash flows from operating activities is recommended by the FASB.
II. When the statement of cash flows is completed, the net cash flows from operating activities should be equal to the net income shown on an accrual-basis income statement.
User Contributed Comments 7
| User | Comment |
|---|---|
| kalps | Direct method is recommended by the FASB |
| sarath | Direct method allows a fair and easy to understand presentation of the cash flows... |
| wulin | II is false because of the "accrual-basis". |
| YOUCANDOIT | Both direct and indirect methods are allowed by both FASB and U.S.GAAP, though the direct method is preferred. Under GAAP, if the direct method is used, the indirect method is required to be disclosed in the footnotes. |
| Saxonomy | Statement II is wrong because the CFO on the completed Statement of CFs will not include items that are included in the Income Stmnt's net income e.g. CFIs like spending cash to purchase a building. |
| johntan1979 | II is wrong because net income is not equal to net cash flow from operating, regardless of whatever method is used. |
| ascruggs92 | Is this a joke? Why, if the direct method is preferred and recommended, does nobody use it? I haven't seen a single 10-K for a US company with a direct method statement of cash flows |
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Learning Outcome Statements
describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data
CFA® 2025 Level I Curriculum, Volume 2, Module 4.