Question

Describe the benefits of the Statement of Cash Flows and whether you believe the Direct or Indirect Method is better for readers of the financial statements? Explain your response.

Answer 1

CASHFLOW STATEMENT A STUDY

EVERY FINANCIAL ORGANISATION MAINTAIN BOOK OF RECORDS ABOUT THEIR DAY TO DAY TRANSACTIONS.THEY RECORDING THE FLOW OF CASH IN A SYSTAMATIC WAY.NORMALLY THE SYSTAMATIC RECORD IS CALLED CASH FLOW STATEMENT.THE STATEMENT OF CASH FLOW IS THE FINANCIAL STATEMENT THAT SUMMERIXES THE AMOUNT OF CASH AND CASH EQUIVALENTS.IT MESURES HOW WELL A COMPANY MANAGES ITS DEBT OBLICATIONS AND FUND ITS OPERATING EXPENCES.THE CASHFLOW STATEMENT COMPLEMENTS THE BALANCESHEET AND INCOME STATEMENT AIS A MANDATORY PART OF A COMPANY'S FINANCIAL REPORT SINE THE 1987

METHOD OF CASHFLOW

THERE HAVE TWO TYPE OF CASHFLOW

1.DIRECT METHOD

2.INDIRECT METHOD

1.DIRECT METHOD

DIRECT METHOD OF CASHFLOW STATEMENT IS USE ACTUAL CASHINFLOW AND OUTFLOWS FROM THE COMPANI'S OPERATIONS.IT IS THE STRAIGTLINE METHOD AND IT FOLLOWS ACCRUAL CONCEPT WHICH MEANS RECORD REVENUE WHEN IT EARNS VERSUS WHEN THE PAYMENT RECIEVED FROM THE COSTOMER. THE DIRECT METHOD DOES NOT INCLUDE NET INCOME,IT MI\UST ALSO PROVIDE A RTECONCILATION OF NET INCOME TO THE NET CASH PROVIDED BY OPERATIONS.

2.INDIRECT METHOD OF CASHFLOW

THE INDIRECT METHOD IS THE SECOND ONE WHICH SIMPLY MEANS USES INCREASE AND DECREASE IN BALANCESHEET LINE ITEMS SYSTAMATICALLY TO MODIFY THE OPERATING DSECTION OF THE CASHFLOW STATEMENT FROM THE ACCRUAL METHOD TO CASH METHOD OF ACCOUNTING. THIS METHOD PRESENTS CASHFLOW STATEMENT BEGGNING WITH NET INCOME OR LOSS WITH SUBSEQUENT ADDITION OR DIDUCTIONS FROM THAT AMOUNT FOR NON-CASH REVENUE AND EXPENCES AND RESULTING CASHFDLOW FROM OPERATING ACTIVITIES.

WHICH METHOD IS MORE USEFULL ?

IN THE SENCE OF ACCOUNTING THE DIRECT METHOD IS PURLY STRIGHT LINE BUT NOT INCLUDE NET INCOME AND INDIRECT METHOD FOLLOW PRESENTING CASHFLOW STATEMENT BEGGNING WITH NET INCOME OR LOSS WITH SUBSEQUENT ADDITION OR DIDUCTIONS FROM THAT AMOUNT FOR NON-CASH REVENUE AND EXPENCES AND RESULTING CASHFDLOW FROM OPERATING ACTIVITIES.

CASHFLOW STATEMENT IS IMPORTANT BECOUSE ITS READ BY INVESTORS AND OTHER PEOPLES TO DECISION MAKING.IN THE DIRECT METHOD REQURE ACCOUNTING KNOWLEDGE TO UNDERSTAND CASHFLOW.SO INDIRECT METHOD IS MORE USEFULL TO READERS