Question and answer
What are the differences between the direct and indirect presentation of cash flows? Why does the Financial Accounting Standards Board allow both methods? Which do you prefer? Why?
The Cash Flow Statement has three sections: Cash Flow from Operating Activities, Cash Flows from/for Investment Activities and Cash Flows from/for Financing Activities. The Direct Method is less commonly used than the Indirect Method. [ [ What is the Direct Method? It adds up the cash flows (as opposed to accruals, which the income statement and balance sheet are based upon) in and out of the
business in each of the three areas of Operations, Investments and Financing. The upside to the Direct Method is that it is easy to understand (money in, money out = what's left over), but the downside is that it isn't much help except in tell you what you already know. That is, it tells you some money came in, money came out and you have money left over. The Direct Method is more common in Commonwealth countries (e.g Australia) for some reason, but I'm not sure why. The Indirect Method is the much more common method, which starts with Net Profit (or another profit line item) and then adjusts the balance for non-cash items (e.g. depreciation), changes in balance sheet items (e.g. accounts receivables, accounts payable, inventory). The Indirect Method is less intuitive when looking at it by itself, but is much more helpful when used in conjuction with the income statement and balance sheet. ] ]
Expert answered|nlewis123|Points 40|
Question
Asked 6/15/2013 8:04:07 AM
0 Answers/Comments
Get an answer
New answers
Rating

There are no new answers.

Comments

There are no comments.

Add an answer or comment
Log in or sign up first.
Questions asked by the same visitor
What are the differences between the direct and indirect presentation of cash flows? Why does the Financial Accounting Standards Board allow both methods? Which do you prefer? Why?
Weegy: The statement of cash flows reports cash receipts, cash payments and net changes resulting from operating, investing and financing activities during a period. [ [ Investors and creditors use the information to assess an entity's ability to generate future cash flows, pay dividends and meet debt obligations, and to assess reasons for differences between net income and related cash receipts and payments. Format Sources of cash inflows and outflows in a direct cash flow statement are reported directly without adjustments to net income. Accounts such as sales are converted from accrual basis to cash basis. With an indirect cash flow statement, net income reported is adjusted for revenues and expenses that do not involve cash inflows or outflows, conversion of current liabilities and assets from accrual to cash basis and other items that do not affect cash flows. Clarity Companies favor indirect cash flow statements because they are relatively easy to apply and reconcile the differences between net income and net cash flow provided by operations. Despite being the companies' favorite, investors and creditors prefer direct cash flow statements because they report clearly the sources of cash inflows and cash outflows without the potentially confusing adjustments to net income. Read more: Compare Direct & Indirect Methods on a Cash Flow Statement | eHow.com ] ] (More)
Question
Expert Answered
Asked 6/15/2013 7:08:53 AM
0 Answers/Comments
21,105,854 questions answered
Popular Conversations
Simplify 2(x - 4) + 7(x + 2). User: Simplify 2(x - 4) + 7(x + 2). ...
Weegy: 3(4x + 6) - 9x = 12x + 18 - 9x; = 3x + 18 User: Simplify 8 - (-5) - 4(-7). Weegy: 8 - (-5) - 4(-7) = 8 + 5 ...
5/27/2015 3:01:03 PM| 4 Answers
Simplify 11(2x + 3). 11x + 5 22x + 3 22x + 33
Weegy: 11(2x + 3) = 22x + 33 User: Simplify -3xy^3 + 7xy^3 + (-xy^3) + (-3xy^3). User: Simplify 2x + x. User: ...
5/27/2015 9:20:06 AM| 3 Answers
Simplify 8(3 - 2x). User: Simplify -2[9 - (x + 7)].
Weegy: -2[9 - (x + 7)] = -2(9 - x - 7) = -2(2 - x) = 2x - 4 User: Simplify -12x + 5x. -7 -7x -17x User: Simplify ...
5/27/2015 9:22:24 AM| 3 Answers
A line has a rise of 3 and a run of 12. What is the slope? User: A ...
Weegy: a.25 User: A line has a rise of 6 and a slope of 1/20. What is the run? 30 90 120 Weegy: A line has a rise ...
5/27/2015 12:32:19 PM| 3 Answers
Select all of the terms that are "like." xy2 2xy x2 -xy 2x2y User: ...
Weegy: 2xy, -xy, and xy are "like" terms. User: Simplify -4(N + 9). Weegy: -4(N + 9) = -4N - 36 User: Simplify ...
5/27/2015 9:17:54 AM| 2 Answers
Simplify (5b)(-3a). -35ab -15ab 2ab
Weegy: (5b)(-3a) = -15ab User: Simplify 9 - {x - (7 + x)}. User: What is the expression for "the difference ...
5/27/2015 9:27:00 AM| 2 Answers
Find the value of 21 - 18 ÷ 3 · 2. User: Simplify ...
Weegy: 6(-5)= -30 User: Simplify 6r · s · 4rt. 10rst 10r2st 24r2st Weegy: 6r · s · 4rt. = 24r2st. User: Evaluate ...
5/27/2015 9:35:13 AM| 2 Answers
Acid rain could be referred to as a _____________ phenomenon. a. ...
Weegy: Acid rain could be referred to as a natural phenomenon. User: When geographers observe moraines, they can ...
5/27/2015 11:21:09 AM| 2 Answers
Weegy Stuff
S
Points 759 [Total 767]| Ratings 1| Comments 749| Invitations 0|Offline
S
L
Points 706 [Total 1236]| Ratings 2| Comments 686| Invitations 0|Offline
S
1
Points 596 [Total 988]| Ratings 3| Comments 566| Invitations 0|Offline
S
L
P
Points 429 [Total 2906]| Ratings 1| Comments 419| Invitations 0|Offline
S
P
C
L
P
L
1
P
P
1
P
1
Points 248 [Total 8994]| Ratings 0| Comments 248| Invitations 0|Offline
S
Points 161 [Total 181]| Ratings 0| Comments 161| Invitations 0|Offline
S
1
L
L
Points 84 [Total 8267]| Ratings 0| Comments 84| Invitations 0|Offline
S
L
1
R
Points 80 [Total 1367]| Ratings 0| Comments 80| Invitations 0|Offline
S
L
Points 56 [Total 3810]| Ratings 2| Comments 36| Invitations 0|Offline
S
Points 13 [Total 13]| Ratings 0| Comments 13| Invitations 0|Offline
Home | Contact | Blog | About | Terms | Privacy | Social | ©2015 Purple Inc.