Question

The statement of cash flows is not prepared the same as the income statement or balance sheet. The statement of cash flows requires that the net income must be converted from an accrual basis to a cash basis. This statement can be prepared in either of two ways - the Indirect method or the Direct method.

What is the difference between preparing one compared to the other - and which do you feel is a better way to prepare this statement?

Your response to this Discussion Starter should be a minimum of 250 words

Answer 1

The principle distinction between the direct technique and the indirect strategy includes the cash flows from operating activities, the main area of the statement of cash flows. (There is no distinction in the cash flows revealed in the contributing and financing activities segments.)

• Under the direct technique, the cash flows from operating activities will incorporate the sums for lines, for example, cash from clients and cash paid to suppliers. Interestingly, the indirect strategy will demonstrate net pay took after by the alterations expected to change over the aggregate net pay to the cash sum from operating activities.
• The direct technique should likewise give a compromise of net wage to the cash gave by operating activities. (This is done consequently under the indirect strategy.)
• The indirect strategy begins with net pay and acclimates to cash spill out of tasks, while the direct technique begins with net benefit and flows through the pay statement to figure cash flows from activities.
• The direct strategy begins with deals and takes after cash as it flows through the pay statement, while the indirect technique begins with net salary and alters for non-cash charges and different things.
• Accounting report things are excluded in the cash spill out of activities for the direct strategy, while they are incorporated for the indirect technique.
• The direct strategy will bring about a lower or higher cash stream figure for operating activities as it points of interest the greater part of the salary statement things, while the indirect technique just uses net pay.

Almost all enterprises set up the statement of cash flows utilizing the indirect strategy.