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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Which method calculates operating cash flows by adjusting the income statement on a line-by-line basis?

  1. a. Direct method
  2. b. Indirect method
  3. c. Working paper approach
  4. d. Income method
  5. e. None of these.

To determine

Identify the method that calculates the operating cash flows by adjusting the income statement on a line-by-line basis.

Explanation

Operating Cash Flow:

The cash flow obtained from the operational and profit generating activities in a firm are termed as the operating cash flow. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

a.

In direct method, the operating cash flows are computed by adjusting on a line to line basis. This adjustment is made on the income statement to reflect the cash flows. Therefore, a is the correct option.

b.

In the indirect method, the operating cash flows are computed by adjusting the net income for noncash items and other accruals...

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