What are the two methods for preparing the Statement of Cash Flows? Which section of the...
What are the two methods for preparing the Statement of Cash Flows? Which section of the Statement of Cash Flows is different when preparing the financial statement using these two methods?
Homework Answers
Answer
- The two methods of preparing the Statement of Cash Flows
are:
#1: Direct Method, where cash inflows and cash outflows are directly entered classified under various activities head, and
#2: Indirect Method, where under Operating activities, cash inflows/outflows are figured out indirectly by adjusting Net Income (loss) amount. - The section that is different when preparing the Statement of Cash flows using these two method is OPERATING ACTIVITIES SECTIOn.
>Under Direct method, Operating
activities cash inflows/outflows are direct entered.
>Under Indirect Method, net cash flows under Operating
activities is calculated by adjusting the Net Income (loss) by
various non cash items like depreciation and amortisation, changes
in current assets and liabilities, loss/gain on sale of
investments, etc.
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