Cash Flows
Cash Flow
Week 7 Checkpoint
XACC/291
Cash Flow 2 Generally, two approaches are used to prepare the statement of cash flows direct and indirect method. Of both these methods, the direct method results in a more easily understandable report. The direct method for preparing statement of cash flows emphasizes on reporting major classes of gross cash receipts and payments. A method of creating a statement of cash flow during a given reporting period. This method uses the actual cash flow information from the company’s operations segment, instead of using the accrual accounting values. Under the direct methods, the only section of the cash flow statement that will differ in presentation is the cash flow from operations section. Since the direct methods uses actual cash flow information, such as the actual cash outflow of all overhead expenses, there usually must be a different method of calculation for the company's internal controls. The indirect method approach of preparing statement of cash flows focuses on using net income as a commencing point, making adjustments for all transactions for non-cash items, and then adjusting from all cash-based transactions. An increase in an asset account is deducted from net income, and an increase in a liability account is added back to the net income. This method, therefore, converts accrual-basis net income into cash flows through the use of a series of additions and subtractions. A cash flow statement is a financial report that describes the sources of a company's cash and how that cash was spent over a specified time period. It does not include non-cash items such as depreciation. This makes it useful for determining the short-term viability of a company; particularly it is ability to pay bills. The management of cash flow is so crucial for businesses and small businesses, most analysts recommend that an entrepreneur study a cash flow
Week 7 Checkpoint
XACC/291
Cash Flow 2 Generally, two approaches are used to prepare the statement of cash flows direct and indirect method. Of both these methods, the direct method results in a more easily understandable report. The direct method for preparing statement of cash flows emphasizes on reporting major classes of gross cash receipts and payments. A method of creating a statement of cash flow during a given reporting period. This method uses the actual cash flow information from the company’s operations segment, instead of using the accrual accounting values. Under the direct methods, the only section of the cash flow statement that will differ in presentation is the cash flow from operations section. Since the direct methods uses actual cash flow information, such as the actual cash outflow of all overhead expenses, there usually must be a different method of calculation for the company's internal controls. The indirect method approach of preparing statement of cash flows focuses on using net income as a commencing point, making adjustments for all transactions for non-cash items, and then adjusting from all cash-based transactions. An increase in an asset account is deducted from net income, and an increase in a liability account is added back to the net income. This method, therefore, converts accrual-basis net income into cash flows through the use of a series of additions and subtractions. A cash flow statement is a financial report that describes the sources of a company's cash and how that cash was spent over a specified time period. It does not include non-cash items such as depreciation. This makes it useful for determining the short-term viability of a company; particularly it is ability to pay bills. The management of cash flow is so crucial for businesses and small businesses, most analysts recommend that an entrepreneur study a cash flow