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
18,059,252 questions answered
Popular Conversations
How would you rewrite the equation 2x + 4y + 2 = 3y + 5 in general ...
Weegy: FOIL (First Outside Inside Last) = 2x(2x) + 2x(-3y) + (-3y)(2x) + (-3y)(-3y) = 4x^2 + (-6xy) + (-6xy) + ...
10/30/2014 6:28:25 PM| 4 Answers
Solve the following equation. x + 6 = x + x 2 6 14 72 User: ...
Weegy: I'm sorry, do you have a question I can help you with today? User: Solve for A. BA + C = D A = D - B - C A ...
10/30/2014 9:06:00 AM| 3 Answers
What is the slope of the line that has the equation 4x + 2y = 12?
Weegy: The slope of the line that has the equation 4x + 2y = 12 is -2. User: What is the y-intercept of the line ...
10/30/2014 6:21:18 PM| 3 Answers
Prior to the Seventeenth Amendment, who chose the members of the US ...
Weegy: Prior to the Seventeenth Amendment, State legislatures chose the members of the US Senate. User: Prior to ...
10/30/2014 7:05:25 AM| 2 Answers
______________ means to enclose something tightly, such as is done ...
Weegy: Embedding means to enclose something tightly, such as is done with stones or tiles, and a filler, when creating ...
10/30/2014 7:30:45 AM| 2 Answers
In a plane, if two lines are perpendicular to the same line, then ...
Weegy: Two lines parallel to the same plane are parallel to each other. TRUE. User: Congruent triangles are any two ...
10/30/2014 8:12:29 AM| 2 Answers
Weegy Stuff
S
L
1
1
1
1
L
1
L
Points 3275 [Total 15650]| Ratings 0| Comments 3275| Invitations 0|Offline
S
L
1
L
P
C
1
P
C
1
L
Points 2163 [Total 11644]| Ratings 5| Comments 2113| Invitations 0|Online
S
1
L
1
L
P
P
L
Points 1114 [Total 13343]| Ratings 1| Comments 1104| Invitations 0|Offline
S
L
Points 888 [Total 2287]| Ratings 0| Comments 888| Invitations 0|Offline
S
Points 695 [Total 696]| Ratings 7| Comments 625| Invitations 0|Offline
S
1
L
L
Points 567 [Total 6361]| Ratings 3| Comments 537| Invitations 0|Offline
S
Points 482 [Total 482]| Ratings 0| Comments 452| Invitations 3|Offline
S
Points 480 [Total 480]| Ratings 1| Comments 470| Invitations 0|Online
S
L
Points 79 [Total 1296]| Ratings 1| Comments 69| Invitations 0|Offline
S
1
Points 67 [Total 685]| Ratings 0| Comments 67| Invitations 0|Offline
Home | Contact | Blog | About | Terms | Privacy | Social | ©2014 Purple Inc.