Practice Quiz

Case Interview Prep

Category - Accounting

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Which is the more widely-used method for preparing a statement of cash flows?

I Direct
II Indirect
  1. I
  2. II
  3. It’s an approximate 50/50 split between I and II.
  4. Neither is a method used in preparing a statement of cash flows.
  5. GAAP does not allow method I nor method II.
Explanation
Answer - B - The indirect method is more widely used for preparing a statement of cash flows.

Key Takeaway: While the direct method is actually recommended by the Financial Accounting Standards Board (FASB), it is rarely used. Approximately 1-2% of businesses use the direct method; the indirect method is preferred due to its simplicity.
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