Starting a Business All-in-One For Dummies by unknow

Author:unknow
Language: eng
Format: epub, pdf
ISBN: 9781119565208
Publisher: Wiley
Published: 2019-06-05T00:00:00+00:00

Opting for the indirect method

Having to read both the operating activities section of the cash flow statement and a supplemental schedule gets to be rather demanding for financial statement readers. Accordingly, the accounting rule-making body decided to permit an alternative method for reporting cash flow from operating activities. The alternative method starts with net income and then makes adjustments in order to reconcile cash flow from operating activities with net income. This alternative method is called the indirect method, which is shown in Figure 4-2. The rest of the cash flow statement is the same, no matter which option is selected for reporting cash flow from operating activities. Compare the investing and financing activities in Figures 4-1 and 4-2; they’re the same.

© John Wiley & Sons, Inc.

FIGURE 4-2: The statement of cash flows, illustrating the indirect method for presenting cash flow from operating activities.

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