Answer to Question #81414 in Finance for Hugh Heron

Question #81414
Describe how you could index the data on a cash flow statement to ensure it can be quickly located and referred to later. Be specific.
Expert's answer
The Cash Flow Statement simply states the inflows and outflows of cash during a finite period of time.
By providing a steady and up-to-date financial reporting, a business is able to make appropriate decisions.
The cash flow statement is a product of the activities contained in the income statement and balance sheet. It combines the "hidden events" captured in both documents to illustrate what's happening to the bank account.
The preparation of a cash flow statement is realized by ranking the cash flow to 3 components, through which the money is received and paid by the company:
- Main / operational activities
- Investments
- Financing
Methods of drawing up a statement of cash flows
The cash flow statement can be presented in two ways: indirect method and direct method.
Direct method
The direct method represents the cash flows from various activities through the calculation of outflows and inflows of cash. Nevertheless, this is the method preferred by a minority of companies, since additional information is required for its preparation.
Indirect method
The indirect method is most preferable for companies, since it compares the cash flow with the net profit received from the main / operating activity.
The indirect method of presentation is very popular, because the information required for it is relatively easily assembled from the accounts that a business normally maintains in its chart of accounts.


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