Question

Please let your classmates know about some of the advantages of reporting cash flows from operating activities by the indirect method on the Statement of Cash Flows.

Answer 1

Answer:

Cash flow means information about the changes in cash and cash equivalents of a business. Cash flows classifying into operating, investing, and financing activities. The cash flow puts the company in a good position to expand its business. Cash flow prepare by the two method: Direct method and indirect method.

Operating activities are that activities which the comprise of main activities of an accounting period. Cash flow from operating activity by indirect method is begins with the amount of net profit or loss. When cash changes is hand accounting records revenue and expense.

In that includes certain non operating items like interest paid, profit or loss on sale of fixed assets, and non cash items i.e. depreciation. So that, net profit or loss of statement is cash flows from operating activity.

Advantages of cash flow from operating activity by indirect method :  

• Cash flow from operating activity by indirect method is provide more meaningful information.
• Indirect method focus on the difference between net income and net cash flow from operating activities.
• Indirect method of reporting cash flow is more cost effective.
• Cash flow of operating activities by indirect method will manage to plan and control the financial operation.
• Indirect method of cash flow of operating changes in non-cash working capital.
• It is provides a useful link between the statement of cash flow and the income statement and balance sheet.
• Indirect cash flow is an easier for creditors and investors for make a decision making.
• In the cash flow activity ratio analysis will helps the profitability and position of business.
• It is less costly so that, report of gross operating cash receipts and payments.
• Cash flow from operating activity by indirect method which is reports provide a clear understanding of cash flows & income information, non-cash transaction i.e. depreciation.
• The operating cash flow must be found of expenses from net income.
• Cash flow from operating activity is preferred by many organisation because it saves time and resources.

At last i can say that cash flow of operating activities by indirect method provides a view of a company's cash position from business operation. It is easier for prepares to create a simple for users and highlights the net income & net cash from operating activities.