Reading 34: Understanding the Cash Flow Statement - LOS c ～ difference, between, direct, method, white

mayanfang1

Q1. What is the difference between the direct and the indirect method of calculating cash flow from operations?

A)   The direct method starts with sales and follows cash as it flows through the income statement, while the indirect method starts with net income and adjusts for non-cash charges and other items.

B)   The indirect method starts with gross income and adjusts to cash flow from operations, while the direct method starts with gross profit and flows through the income statement to calculate cash flows from operations.

C)   Balance sheet items are not included in the cash flow from operations for the direct method, while they are included for the indirect method.

Q2. The correct set of cash flow treatments as they relate to interest paid according to U.S. generally accepted accounting principles (GAAP) and International Accounting Standards (IAS) GAAP is:

          U.S. GAAP                         IAS GAAP

 

A) CFO                                            CFO or CFF

B) CFF                                             CFF

C) CFO or CFF                               CFO

Q3. According to U.S. Generally Accepted Accounting Principles (GAAP) and International Accounting Standards (IAS) GAAP, should dividends paid be treated as a cash flow from financing (CFF) or as a cash flow from operations (CFO)?

          U.S. GAAP                          IAS GAAP

 

A) CFF or CFO                               CFO

B) CFO                                            CFF

C) CFF                                             CFF or CFO

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