Presented below is the operating activities section of the statement of cash flows for Golden Consulting for 2016:

Operating activities:

Net income $ 92,000

Add: Depreciation 20,000

Decrease in accounts receivable 8,000



$120,000

Deduct: Decrease in accounts payable (6,000)

Net cash inflow from operating activities $114,000

Which method of preparing the operating activities section has Golden Consulting used?

a. The direct method b. The indirect method c. Either method d. Cannot be determined without further information

b. The indirect method

Explanation:

The Operating Activity Section Calculates the Net Cash flow from Operating Activities. It can be prepared in only two methods according to IAS 7.The methods are Indirect Method, Direct Method

Indirect Method Reconciles the Net Income for the Year to the Net Cash  flow from Operating Activities after adjustments of Non- Cash flow Items, and Adjustments for Working Capital Movements.

Direct Method focuses on the Cash Inflows and Outflows related to the Operating activities to Calculate the Net Cash  flow from Operating Activities.These Cash flows results from Receipts from Customers and Payments made to Suppliers and Employees

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