Direct & Indirect Cash Flows

Good Essays
Checkpoint: Direct and Indirect Cash Flows
Marlene A Broaddus-Waddell
XACC-291
June 27, 2013

The difference between direct and indirect method of cash flows are the operating activities, which is the first section of the statement of cash flows. The investing and financing activities sections has no reported differences in the presentation of the cash flows. The direct presentation of cash flows displays cash receipts and payments from operations, more or less like the actual statement of cash flow. On the other hand, the indirect presentation of cash flows displays items with its fractional total net income. The item adjusted using the indirect method does not affect the cash. The direct method uses the cash flow from operations and is directly calculated (from scratch). Using the net income of the company and making adjustments calculate the indirect methods of cash flows from operations. The income is calculated using the accrual method and the owner is only interested in the cash receipts reduced by cash disbursements.
These adjustments include: -Adding back expenses that were deducted from the net income but did not cost anything. -Subtracting capital gains and loses that are not part of operating -Subtracting expenses that were accrued but not yet paid. -Subtracting expenditures that cost cash but were not expensed this year. -Subtracting income that was accrued but not yet received. -Adding back cash receipts that were not treated as income. The Financial Accounting Standards Board (FASB) proclaims both methods to be accurate and useful. However, the FASB does not name either one to be their sole choice. If each method results in the same answer you can use each method to figure out if the other is calculated correctly. The indirect method is the quicker method and is the least expensive but is also easiest compared to the direct method. It is my opinion that both methods would come in handy when dealing in business so I would most



References: www.accountingcoach.com Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Financial accounting (7th ed.). Hoboken, NJ: John Wiley & Sons

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Direct and Indirect Cash Flows Christine Grae XACC/291 Principles of Accounting II March 29, 2015 Susan Schulz When companies utilize the accrual method of accounting, they will prepare a cash flow statement in order to understand the flow of cash. We call this method the cash flow statement and it can be prepared in two different methods which would be indirect and direct. The methods are different but they both will be conducted with the same results for the accounting period. The direct…

    • 394 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Direct and Indirect Cash Flows XACC/291 Shontell Chrisman October 30, 2013 Direct and Indirect Cash Flows The direct and indirect presentations of cash flows both reach the same conclusions, however, the way that the conclusions are reached are different. The direct method reports everything that involves cash, and the indirect method reports for items that do not affect cash. A direct statement of cash flow reports a company 's sources and use of cash. The statement has three…

    • 350 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    1. Week 8 / Checkpoint The differences between direct and indirect that they involve the way Cash Flow are from operations of activities. This I do recall is the first part of the Cash Flow Statement. The differences are to each are to follow. Direct Presentation: involves the cash flows in which analyze the company results and uses of cash. There are three parts that report cash receipts and cash payments. These parts are operations, investments, and finance transactions. Operating transactions…

    • 265 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Cash Flow Statements - Indirect method – Reconciliation for Cash from Operations –from Accrual profit to Cash generated. Accrual profit recorded items below that did not involve Cash Action to derive Cash Explanations and reasons for adjustments necessary to derive Cash from Operations [Profit making activities] 1 Depreciation buildings Add back Non cash expense that reduced profit 2 Proceeds from sale of Asset deduct Non cash gain or profit that increased profit 3 Carrying amount of Asset sold…

    • 544 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Indirect and Direct

    • 342 Words
    • 2 Pages

    statement of cash flows as part of its full set of financial statements. Net cash flow from operating activities shows the amount of cash a company generates through its normal course of business. Accounting rules allow companies to report their cash flow statement using the direct or indirect method, and both methods report net cash flow from operating activities. Direct/Indirect Cash Flow The main difference between the direct method and the indirect method involves the cash flows from operating…

    • 342 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Direct and Indirect

    • 1250 Words
    • 5 Pages

    DIRECT AND INDIRECT In this section, We are going to see How the conversion of Direct to Indirect Speech and Indirect to Direct Speech is done? We may report the words of a speaker in two ways. 1. Direct Speech We may quote the actual words of the speaker as it is. This method is called Direct Speech. 2. Indirect Speech We may report what he said without quoting his exact words. This method is called Indirect Speech or Reported Speech. Example: • Direct: Clinton said, “I am very busy now…

    • 1250 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Direct and Indirect

    • 3565 Words
    • 15 Pages

    Topic: Direct and Indirect Speech We may report the words of a speaker in two ways:- (i). we may quote his actual words. This is called Direct Speech. (ii). We may report what he said without quoting his exact words. This is called Indirect Speech. For example: Direct: Ahmed said, “I am very busy now”. Indirect: Ahmed said that he was busy then. Direct Speech is that form of narration in which the actual words of a speaker are reported. It may…

    • 3565 Words
    • 15 Pages
    Good Essays
  • Better Essays

    Cash Flows

    • 958 Words
    • 9 Pages

    Cash Flows Aleshia Wisch ACC206: Principles of Accounting II Prof. Eric Sumners August 11, 2014 ACC 206 Week Assignment 1. Critical Thinking Question: Answer the following questions: Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed? It is important for a company to show what assets they have on hand that can convert to cash. Non cash transactions are disclosed…

    • 958 Words
    • 9 Pages
    Better Essays
  • Powerful Essays

    Cash Flow

    • 2314 Words
    • 10 Pages

    Statement of Cash Flows Preview of Chapter Usefulness and Format Usefulness of the Statement of Cash Flows Provides information to help assess: 1. Entity’s ability to generate future cash flows. 2. Entity’s ability to pay dividends and obligations. 3. Reasons for difference between net income and net cash provided (used) by operating activities. 4. Cash investing and financing transactions during the period. SO 1 Indicate the usefulness of the statement of cash flows. Usefulness…

    • 2314 Words
    • 10 Pages
    Powerful Essays
  • Satisfactory Essays

    Cash Flows

    • 287 Words
    • 2 Pages

    Cash Flows paper Cash flows are the flow of funds in and out of a company. The cash flows statement is one of four financials statements used by firms to report their financial position, including the balance sheet, income statement and statement of shareholders equity. The Cash flows statement is a statement that reports the flow of funds, the origin of the funds and how the funds are spent within a business. The cash flow statement can be recreated from information documented on the balance sheet…

    • 287 Words
    • 2 Pages
    Satisfactory Essays