34What is known about the direct and indirect methods of preparing statements of cash flow? The indirect method is more popular among large U.S. companies Neither method is very popular among large U.S. companies Both methods have the same popularity among large U.S. companies The direct method is more popular among large U.S. companies
Question
34What is known about the direct and indirect methods of preparing statements of cash flow? The indirect method is more popular among large U.S. companies Neither method is very popular among large U.S. companies Both methods have the same popularity among large U.S. companies The direct method is more popular among large U.S. companies
Solution
The direct and indirect methods are two ways of preparing the statement of cash flows.
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Direct Method: This method involves calculating cash flows by directly adjusting each line item on the income statement from the accrual basis of accounting to the cash basis. This method provides information about major classes of gross cash receipts and payments. However, it is less commonly used because it often requires more effort and data gathering.
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Indirect Method: This method starts with net income and then adds or subtracts items to convert that amount to the cash basis. It adjusts net income for changes in balance sheet accounts to calculate the cash from operating activities. This method is more popular among large U.S. companies because it is easier to prepare and less time-consuming.
So, the correct answer to your question is "The indirect method is more popular among large U.S. companies".
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