Which one of the following statements is not true about statements of cash flows prepared according to U.S. GAAP?

The operating section of the indirect method starts with the net income of the period.

In the indirect method statement, the period's depreciation is added to net income because it is a source of cash.

Interest payments are included in the operating section of the direct method statement.

The investing section of the direct method statement for a period is identical to the investing section of the indirect method statement for the same period.

Expert Solution

The Answer is

In the indirect method statement, the period`s depreciation is added to net income because it is a source of cash.

Explanation:

1) Depreciation is added to net income under indirect method but it is not a source of cash, that is why it is false statement.

2) Depreciation is a non cash item, because we have add back to net income to know total operating cash flow.

3) Option A is not correct because that statement is true in relating to starting of operating section of cash flow under indirect method with net income.

4) Option C is not correct because that statement is true in relating to interest payments are included in operating section under direct method as per U.S. GAAP. Where as interest payments are included in financing activity or operating activity under IFRS.

5) Option D is not correct because that statement is true because investing section is same under both direct and indirect methods as per U.S. GAAP.

ekkarill92 answered 2 years ago

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