- CFA Exams
- CFA Exam: Level I 2021
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 23. Understanding Cash Flow Statements
- Subject 2. Preparing the Cash Flow Statement
CFA Practice Question
Which item begins the direct method of presenting the cash flow from operating activities?
B. Gross profit
C. Net income
A. Sales
B. Gross profit
C. Net income
Correct Answer: A
The direct method of determining cash flow from operating activities begins with sales. Sales are adjusted for the change in accounts receivable to compute the cash collections from sales.
User Contributed Comments 2
| User | Comment |
|---|---|
| Inaganti6 | It's so simple yet requires thought - the amount your A/C Receivable did not go up by with respect to sales is what you got in cash and what it went up by is what you paid for in credit. It's pure common sense but I overthink these things some times ! |
| Inaganti6 | *** what you were paid with in credit (you gave) |