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The indirect method of preparing the operating activities section of the statement of cash flows begins with which figure?
ANet cash flow from investing activities
BTotal cash received from customers
CThe ending balance of the Cash account
DNet income from the statement of profit or loss
Answer & Solution
Correct answer: D. Net income from the statement of profit or loss
1. The indirect method begins with net income and mathematically backs out non-cash transactions.
2. It does not itemise receipts and payments; that is the direct method.
3. Net income comes from the statement of profit or loss (income statement).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.2.2 "Indirect vs direct method", p.267_
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