Preparing the Statement

Preparing the Statement - came from and what it was spent...

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Preparing the Statement There are two acceptable methods for reporting a statement of cash flows: the direct and the indirect  methods. The difference between the two methods is seen in the operating section of the statement  of cash flows. Although the total cash provided (used by) operating activities will be the same, the  line items used to report the cash  flows will be different. Direct Method Using the  direct method  requires cash related to day-to-day business operations to be identified by  type of activity. For example, cash collected from customers, cash paid to employees, cash paid to  suppliers (or paid for merchandise), cash paid for building operations, cash paid for interest, and  cash paid for taxes. These types of labels make it easy for the reader to understand where cash 
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Unformatted text preview: came from and what it was spent on. Indirect Method Although the Financial Accounting Standards Board favors the direct method for preparing the statement of cash flows, most companies do not use the direct method, opting instead for the indirect method because it is easier to prepare and provides less detailed information to competitors. The indirect method begins with the assumption that net income equals cash and adjusts net income for significant non-cash income statement items such as depreciation, amortization, and gains and losses from sales, and for net changes in current asset, current liability, and income tax accounts....
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