CFO question... from Schweser 3AM question, referring, necessary, completely, understand

whaler

Just a quick question about CFO under direct method... assume a question provides sales and other necessary info to arrive at CFO under direct method. Do we subtract depreciation? If anyone has access to Schweser 3 AM, I am referring to question 48.

I understand how to come to the answer based on Total Change in Cash = CFO + CFF +CFI, but I approached the ? via CFO direct method and excluded depreciation... I could be completely wrong, but I thought under direct method of CFO, non cash charges were not included and under indirect method we needed to add those back as they are NCC.

Finalnub

No, because it's a non-cash charge. You don't subtract it.

You add it back under indirect.

soddy1979

Thanks for the follow-up... my post above should read do we add it back rather than subract... I could be reading their explanation wrong, but it looks like they added it back to arrive at 22,250...

I left it out and came to 21,250



Edited 1 time(s). Last edit at Friday, June 5, 2009 at 03:55PM by dhwit.

johnnyBuz

You are correct in your statment. direct is purly cash basis. no accounting mombo jumbo

So i am guessing you got the answer wrong. Dont have that test.

rkapoor

No, you don't add it back or subtract it. You take Sales and ignore depreciation altogether under direct method.