ACC 206 Week 1 Problem 3 Overview of direct and indirect methods (Updated October 2013).

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Overview of direct and indirect methods

Evaluate the comments that follow as being true or false. If the comment is false, briefly explain why.

a. The dollar change in the Merchandise Inventory account appears on the statement of cash flows only

when the direct method of statement preparation is used.

b. Depreciation expense is added back to net income when the indirect method is used.

c. The cash paid to suppliers is normally disclosed on the statement of cash flows when the indirect method of statement preparation is employed.

d. One of the advantages of using the direct method rather than the indirect method is that larger cash flows from financing activities will be reported.

e. Both the direct and indirect methods will produce the same cash flow from operating activities.