Cash Flows from Operations – True or False

Practice Question

Intro to Financial Accounting
Statement of Cash Flows
Cash Flows from Operations
True or False

The direct method of preparing the statement of cash flows is less commonly used than the indirect method.

Answer +
Correct Answer: TRUE
Explanation +

The direct method lists specific operating cash receipts and payments, such as cash collected from customers and cash paid to suppliers. Although it provides more detailed insight, it's less commonly used because it requires more detailed record-keeping.

Most companies prefer the indirect method, which starts with net income and adjusts for non-cash items and changes in working capital.