Under US GAAP, what additional item must be included when using the direct method for cash flow statements?

When using the direct method for preparing the statement of cash flows, it is mandatory to include a reconciliation of net income to net cash provided by operating activities. This is important because while the direct method presents actual cash inflows and outflows from operating activities, the reconciliation provides users with a link to the accrual basis results reported on the income statement.

The reconciliation serves as a bridge that helps stakeholders understand the differences between net income, which is calculated based on accrual accounting, and net cash provided by operating activities, which reflects actual cash transactions during the period. This additional information assists in highlighting how non-cash items, such as depreciation and changes in working capital, affect the cash flow from operations.

While other choices may seem relevant to financial reporting, they are not requirements specifically tied to the direct method of cash flow statement preparation. For instance, non-cash investing and financing activities remain disclosed separately, but not as an additional requirement for the direct method. Similarly, a statement of cash receipts or a breakdown of cash equivalents, while providing useful information, are not mandated enhancements tied specifically to this reporting method.