Question

In about 200 words (total), answer one of the following questions

1. What is the principal advantage and the principal disadvantage of the direct method of reporting cash flows from operating activities?
2. What are the major advantages of the indirect method of reporting cash flows from operating activities?
3. For the current year, Packers Company decided to switch from the indirect method to the direct method for reporting cash flows from operating activities on the statement of cash flows. Will the change cause the amount of net cash flow from operating activities to be larger, smaller, or the same compared to the indirect method being used? Explain.

Answer 1

Answer:

What is the principal advantage and the principal disadvantage of the direct method of reporting cash flows from operating activities?

A)The direct method for reporting cash flows from working activities additionally called income statement technique includes direct detailing or reporting of organization's money exchange information remembered for activities head during a bookkeeping period.

The principal drawback this strategy holds is that this procedure requires additional time as it includes detailed operating cash flow transaction information of inflows and outflows over the period, generation of real information/value of money receipts and payments records can be inconvenient over the timespan. This technique remains as a costly strategy as it includes point by point reporting of exchanges and contenders can pick up advantage from the equivalent in the event that they get access to this detailed reporting statemets of an organization and is only occasionally selected.

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What are the major advantages of the indirect method of reporting cash flows from operating activities?

A)The indirect method of reporting cash flows from working activities is the way toward presenting changes of information in balance sheet heads and disregarding non-money and non-operating exchange information from total compensation of an organization during a bookkeeping period . Advantage circumstances of utilizing this technique remains as complex free and non-tedious as collection premise of accounting is broadly utilized and accounts genuine financial situation during a bookkeeping period and data is handily produced from the income statement and balance sheet of the organization.

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For the current year, Packers Company decided to switch from the indirect method to the direct method for reporting cash flows from operating activities on the statement of cash flows. Will the change cause the amount of net cash flow from operating activities to be larger, smaller, or the same compared to the indirect method being used? Explain.

A)The cash flow from working activities reported by indirect technique will be same as reported by direct strategy .

This is on the grounds that under direct strategy all money payments for goods working costs will be deducted legitimately from money received from clients to find out incomes or cash flows from working or operating activities .

Under indirect technique all non-cash costs are added to net gain for the period non-cash incomes will be deducted from net gain for the period and changes in current assets and current liabilities adjusts will likewise considered to determine the cash flows from working activities.