CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following statement(s) is (are) true?

I. The indirect method of preparing net cash flows from operating activities is recommended by the FASB.
II. When the statement of cash flows is completed, the net cash flows from operating activities should be equal to the net income shown on an accrual-basis income statement.
Correct Answer: Neither of these statements are true.

I. The indirect method is an alternative to the direct method, but it is not recommended by the FASB.
II. The direct method of preparing net cash flows from operating activities lists specific types of cash inflows and outflows. This method is recommended by the FASB. The indirect method is an acceptable alternative but is not recommended by the FASB.

User Contributed Comments 7

User Comment
kalps Direct method is recommended by the FASB
sarath Direct method allows a fair and easy to understand presentation of the cash flows...
wulin II is false because of the "accrual-basis".
YOUCANDOIT Both direct and indirect methods are allowed by both FASB and U.S.GAAP, though the direct method is preferred. Under GAAP, if the direct method is used, the indirect method is required to be disclosed in the footnotes.
Saxonomy Statement II is wrong because the CFO on the completed Statement of CFs will not include items that are included in the Income Stmnt's net income e.g. CFIs like spending cash to purchase a building.
johntan1979 II is wrong because net income is not equal to net cash flow from operating, regardless of whatever method is used.
ascruggs92 Is this a joke? Why, if the direct method is preferred and recommended, does nobody use it? I haven't seen a single 10-K for a US company with a direct method statement of cash flows
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