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The Direct method produces _________ results as the indirect method in presenting the cash flow.a.Higherb.Lowerc.Differentd.Same

Question

The Direct method produces _________ results as the indirect method in presenting the cash flow.

  • a. Higher
  • b. Lower
  • c. Different
  • d. Same
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Solution

To determine the correct answer to the question regarding the results produced by the Direct method compared to the Indirect method in presenting cash flow, let's analyze the options:

  1. Understanding the Direct and Indirect Methods:

    • The Direct method calculates cash flow from operating activities by directly summing all cash receipts and cash payments during the reporting period.
    • The Indirect method starts with net income and adjusts for non-cash transactions and changes in working capital, thereby converting the accrual basis of accounting to cash basis.
  2. Comparative Analysis:

    • Both methods ultimately arrive at the same cash flow from operating activities; however, they do so through different processes. The final cash flow result reported in the financial statements will be identical for both methods.
  3. Conclusion: Given the above understanding, the answer to the question is that both methods produce the same results in terms of cash flow from operating activities.

Final Answer

d. Same

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