Chapter 20: Detailed Analysis of Statement of Cash Flows in Economics

What is true of deferred income taxes with regards to an indirect method cash flow statement?

- A decrease in net deferred tax liabilities must be subtracted from accrual-basis net income.

- An increase in net deferred tax liabilities must be added to accrual-basis net income in the cash flow statement.

What are some reasons that the overwhelming majority of public companies use the indirect method of preparing cash flow statements?

- The indirect method relies exclusively on data already available in accrual accounts.

- The indirect method characterizes cash flow in a way that many analysts find useful.

What is true regarding restricted cash?

It is required to be included in the cash amounts used to determine the change in cash to which cash flow statement reconciles.

Why do some justify their preference of the direct method over the indirect method for computing net cash provided by operating activities?

The direct method discloses operating cash flows by category which facilitates cash flow predictions.

Firms using the indirect method are required to separately disclose the amount of

interest paid.

ASU 2016-18 requires that ______ be included in the cash amounts used to determine the change in cash to which the cash flow statement reconciles.

restricted cash

An increase in prepaid expenses

is deducted from accrual earnings to obtain operating cash flows using the indirect method.