1. The direct method of preparing the operating activities section of the statement of cash flows starts with net income as reported on the income statement followed by the adjustments necessary to convert the accrual-based net income figure to a cash based equivalent. This statement is

True or False

2. The amount of the cash flow from operating activities shown on the statement of cash flows will be

• A. higher if the company used the direct method than it would be if the indirect method were used.

• B. lower if the company used the direct method than it would be if the indirect method were used.

• C. the same regardless of whether the company uses the direct or the indirect method.

• D. The answer cannot be determined from the information provided.