Case Interview Prep

Answer - B - If a corporation is using the indirect method to prepare a statement of cash flows, the starting point is the net income from the income statement.

Key Takeaway: The indirect method is more widely used to prepare the statement of cash flows, as it is more simplistic. Net income from the income statement is taken and adjusted for items that do not affect cash flow. Adjustments include:
· Revenues and expenses that do not involve cash inflows or outflows, such as depreciation and amortization
· Gains and losses on events reported in other sections of the statement of cash flows
Conversions of current operating assets and liabilities from the accrual to the cash basis