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Exercise 1-4 TF

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Overview of direct and indirect methods
Evaluate the comments that follow as being true or false. If the comment is false,
briefly explain why.

a. Both the direct method and the indirect method will produce the same cash flow
from operating activities.

b. Depreciation expense is added back to net income when the indirect method is
used.

c. One of the advantages of using the direct method rather than the indirect method
is that larger cash flows from financing activities will be reported.

d. The cash paid to suppliers is normally disclosed on the statement of cash flows
when the indirect method of statement preparation is employed.

e. The dollar change in the Merchandise Inventory account appears on the statement
of cash flows only when the direct method of statement preparation is used.

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