Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.
Cash flows from operating activities: These are the cash produced by the normal business operations.
Indirect method: Under this method, the following amounts are to be adjusted from the Net Incometo calculate the net cash provided from operating activities.
Cash flows from operating activities (Indirect method) |
Add: Decrease in current assets |
Increase in current liability |
|
Loss on sale of plant assets |
Deduct: Increase in current assets |
Decrease in current liabilities |
Gain on sale of plant assets |
Net cash provided from or used by operating activities |
The below table shows the way of calculation of cash flows from operating activities:
To Determine: The major advantage of the indirect method of reporting cash flows from operating activities.
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Financial & Managerial Accounting
- Is there any significance that can be attributed to whether net cash flows are generated from operating activities, versus investing and/or financing activities? Explain.arrow_forwardWhat is the Objective: Useful Information about Net Cash Inflows to the Company, and why is it important?arrow_forwardWhen preparing the operating section of the statement of cash flows, using the indirect method, how must gains and losses be handled? Why?arrow_forward
- What categories of activities are reported on the statement of cash flows? Does it matter in what order these sections are presented?arrow_forwardExplain the difference between the two methods used to prepare the operating section of the statement of cash flows. How do the results of these two approaches compare?arrow_forwardProvide the missing piece of information for the following statement of cash flows puzzle.arrow_forward
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