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Question 2 Not yet answered Marked out of 5.00 P Flag question Define and describe the difference between the direct and indirect methods for calculating the cash flow from operating activities. What are the other major sections of the cash flow statement? Describe the main functions of these components. 7 i- B 1 iii TIT c? U Ꭶ 2 x? = Y E

Answer 1

The major difference between direct and indirect method of Cash flow statement is that in indirect method, the operating cash flow computation starts from "Net Profit" and then non cash items are added back or deducted to arrive at the Net cash flow from operating activitites.

A few type of adjusmets are :

• Deducting the decrease in accounts payable
• Adding the increase in accrued expenses payable
• Adding back depreciation expense
• Deducting the increase in inventory

In direct method of cash flow statement, the point is not net profit. Instead the cash receipts and payments are listed and computed.

A few type of adjustments are :

• Cash receipt from customers
• Cash payment to employees
• Cash payment to suppliers
• Cash payment for interest

Other sections of a cash flow statement are Cash flow from Investing activities and Cash flow from Financing activities.

cash flow from investing activitites, shows cash generated or spent from Investing activities. Some examples are investment in securities, purchase of fixed assets etc.

cash flow from financing activities shows cashflows used to fund the company. Some examples include, receipt of cash from issuing shares, Interest paid on debentures, dividend paid on shares etc.