Operating Cash Flows - Indirect Method

Question 1

What is the purpose of the operating section of the statement of cash flows under the direct method?

Answer 1

The purpose is to show all cash inflows and outflows for operating activities.

Question 2

What is the purpose of the operating section of the statement of cash flows under the indirect method?

Answer 2

The purpose is to adjust accrual net income to net cash flow from operating activities.

Question 3

Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable be added to or subtracted from accrual based net income?

Answer 3

An increase in accounts receivable should be subtracted.

Question 4

Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual based net income?

Answer 4

A decrease in unearned revenue should be subtracted.

Question 5

Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual based net income?

Answer 5

A decrease in inventory should be added.

Question 6

Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be added to or subtracted from accrual based net income?

Answer 6

An increase in accounts payable should be added.