CFA Practice Question

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CFA Practice Question

Which item begins the direct method of presenting the cash flow from operating activities?

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)
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