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What are the major advantages of the indirect method of reporting cash flows from operating activities?
Financial Accounting
Solutions
Financial Accounting
What are the major advantages of the indirect method of reporting cash flows from operating activities?
Determine the major advantage of the indirect method of reporting cash flows from operating activities.
Explanation of Solution
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 Income to calculate the net cash provided from operating activities.
The below table shows the way of calculation of cash flows from operating activities:
| Cash flows from operating activities (Indirect method) |
| Â |
| Add: Decrease in current assets |
| Â Â Â Â Â Â Â Â Increase in current liability |
| Â Â Â Â Â Â Â ;&#x... |
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