Under the indirect method, the operating activities section of the cash flow statement begins with net income.Group startsTrue or False

The statement is True.

Under the indirect method of preparing the cash flow statement, the operating activities section does indeed start with net income. The purpose of using the indirect method is to convert net income, which is reported on an accrual basis under generally accepted accounting principles (GAAP), to net cash provided by operating activities.

The process involves adjusting the net income for non-cash items—such as depreciation and amortization, changes in working capital—such as accounts receivable and inventory—and other adjustments as necessary. These adjustments are made to account for all sources and uses of cash that did not affect net income but had an impact on cash flow. Essentially, this method provides a reconciliation from net income to net cash flow from operating activities, making it easier to understand how cash was generated or used from the core business operations.