Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

13. Statement of Cash Flows

Operating Activities: Indirect Method

Financial Accounting

13. Statement of Cash Flows

Operating Activities: Indirect Method

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Multiple Choice

Operating activities, as reported using the indirect method on the statement of cash flows, are most closely related to which of the following?

Investing activities such as purchasing equipment

Financing activities like issuing stock

Net income and its adjustments for non-cash items

Changes in equity accounts only

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Verified step by step guidance

Understand the context: The statement of cash flows is divided into three sections: operating activities, investing activities, and financing activities. The indirect method focuses on reconciling net income to cash flows from operating activities.

Identify the key concept: Operating activities primarily involve the core business operations, such as revenues and expenses, and adjustments for non-cash items like depreciation, amortization, and changes in working capital accounts (e.g., accounts receivable, accounts payable).

Eliminate unrelated options: Investing activities (e.g., purchasing equipment) and financing activities (e.g., issuing stock) are separate sections of the cash flow statement and are not directly related to operating activities.

Focus on the correct relationship: The indirect method starts with net income (from the income statement) and adjusts it for non-cash items (e.g., depreciation) and changes in working capital accounts to calculate cash flows from operating activities.

Conclude: The correct answer is that operating activities, as reported using the indirect method, are most closely related to net income and its adjustments for non-cash items.