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Flashcards in the statement of cash flows Deck (12):

direct method statement of cash flows

summarizes the transactions that have been posted to the cash ledger account during the period. Can be prepared directly from the etnries in the cash T-account during the accounting period.



three categories of cash flows

1. cash flows from operating activities 2. cash flows from investing activities 3. cash flows from financing activities


difference between direct and indirect methods

the format and information included in the cash flows from operating activities


why use the indirect method?

the operating section of the indirect method statement explains the difference between the net income and the operating cash flows of the period. It provide readers with information about the extent to which and the means by which the entity net income of the period has resulted in operating cash flows.



adjustment made to net income to arrive at the cash effect of operating activties. Add increases in liabilities and decreases in assets, subtract decreased in liabilities and increases in assets, and add non cash expenses and subtract non cash revenues


depreciation and amoritazation expense

a non cash expense.


sales-related de-accruals

the difference between sales and cash collected from customerse during the period


COGS related de-accruals

the difference between cost of good sold expense and cash paid to suppliers.


change in prepaid expenses

de-accruals related to current period expenses funded in prior periods


change in other payables

de-accruals related to current period expenses that will be paid in future periods


net cash provided (used) by operating activities

the difference between various expenses of the period (other than COGS) and cash paid to external parties such as suppliers, utilities providers, landlords, banks, and tax authorities


indirect method statement of cash flows

the operating section starts with the net income and makes a series of de-accrual adjustments to it in order to derive the net cash from operations. It is prepared from the period's income statement accounts and the periods beginning and ending balance sheets.