31. The FASB recommends that the operating section of the statement of cash flows be reported using the direct method.
32. The direct method of preparing the statement of cash flows is usually viewed as user friendly since it requires less accounting knowledge to understand it.
33. Information to prepare the statement of cash flows usually comes from (a) comparative balance sheets, (b) current income statement, and (c) additional information.
34. The direct method for preparing and reporting the statement of cash flows reports net income and then adjusts the necessary items to calculate net cash provided or used by operating activities.
35. The indirect method reports individual operating cash outflows and cash inflows by activity.
36. Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.
37. Depreciation expense is not reported on the statement of cash flows when the direct method is used.
38. When preparing the operating section of the statement of cash flows using the indirect method, noncash operating expenses are added back to net income.
39. When preparing the operating section of the statement of cash flows using the indirect method, nonoperating gains are added back to net income.
40. When preparing the operating section of the statement of cash flows using the indirect method, a decrease in accounts receivable is subtracted from net income.