LOS c: Compare and contrast the key differences in cash flow statements prepared under international financial reporting standards and U.S. generally accepted accounting principles.
What is the difference between the direct and the indirect method of calculating cash flow from operations?
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A) |
The direct method starts with sales and follows cash as it flows through the income statement, while the indirect method starts with net income and adjusts for non-cash charges and other items. | |
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B) |
The indirect method starts with gross income and adjusts to cash flow from operations, while the direct method starts with gross profit and flows through the income statement to calculate cash flows from operations. | |
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C) |
Balance sheet items are not included in the cash flow from operations for the direct method, while they are included for the indirect method. | |
The main difference between the direct and indirect methods of calculating cash flows is the way that cash flow from operations is calculated. The direct method starts with sales and follows cash as it flows through the income statement, while the indirect method starts with income after taxes and adjusts backwards for non-cash and other items. Both methods will have the same result for operating cash flows. The direct and indirect method calculates the financing and investing cash flows the same way and both methods will result in the same cash flow figure.
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发表于 2010-4-19 13:19
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