TRUE OR FALSE: 1. The total net cash flows from operating activities differ betw
ID: 2587312 • Letter: T
Question
TRUE OR FALSE:
1. The total net cash flows from operating activities differ between the direct and indirect methods.
2. Using the indirect method we begin with net income and then list adjustments to net income in order to arrive at operating cash flows.
3. Using the direct method we adjust the items on the income statement to directly show the cash inflows and outflows from operations.
4. If no cash was exchanged in the purchase of equipment financed entirely with a note payable, we represent this as both an investing activity and a financing activity in the statement of cash flows.
Explanation / Answer
1. False, net cash flow from operating activities under direct and indirect method is not differ. Only method of calculations of operating activities under direct and indirect method is differ. But total of net cash flow from operating activities under direct and indirect method is same.
2.True, under indirect mehtod of net cash flow from operating activities is begin with net income then we adjust net income with non cash and non operating activities and change in current assets and liabilities.
3. True, under direct method of cash flow we adjust income statement items directly show cash inflow and outflow.
4.False, if no cash is exchange in any transaction then that transaction will not appear in statement of cash flow. So if equipment purchased with entirely notes payable then it will be not shown in investing activities and financing activities. But appear in non cash activities.
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