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.

rkapoor

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

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.