Describe the methodology, similarities, and the differences between thedirect and indirect methods of preparing the statement of cash flows Besure to explain the major cash flow categories of operating, investing, andfinancing activities, and provide at least two examples of each activity.Then, describe the relationship between the beginning cash balance andthe ending cash balance for the current period. Lastly, explain the reasonswhy one method (direct or indirect) is most often used by corporations toreport cash flows.

The statement of cash flows is a crucial financial statement that provides insights into a company's…

Answered: Describe the methodology, similarities,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

In the context of financial accounting, what is the primary purpose of the statement of cash flows? A) To provide information about a company's economic resources and claims against those resources. B) To report the financial position of a company at a specific point in time. C) To disclose changes in equity during a specific period. D) To present the cash inflows and outflows of a company's operating, investing, and financing activities during a specific period.
What is the purpose of the statement of cash flows in financial reporting, and how does it provide valuable information to users of the financial statements?
Which of the following is not a use of the statement of cash flows? a.Helps creditors analyze the company's operations. b.Provides information about the sources of cash flows. c.Measures how efficiently the company's cash resources are being used. d.Provides insights into the quality and reliability of reported income.
The statement of cash flows is normally a required basic financial statement for each period for which an earnings statement is presented. The statement should include a separate schedule listing the financing and investing activities not involving cash. Required: What are financing and investing activities not involving cash? What are two types of financing and investing activities not involving cash? Explain what effect, if any, each of the following seven items would have on the statement of cash flows. accounts receivable inventory depreciation deferred tax liability issuance of long-term debt in payment for a building payoff of current portion of debt sale of a fixed asset resulting in a loss or gain
Match each of the following term with the corresponding description. Not all descriptions will be used._____ Operating activities_____ Indirect method_____ Cash equivalent_____ Investing activities_____ Direct method_____ Financing activitiesA. Measures the percent of net income that comes from high-margin products.B. Includes such events as the receipt of dividends and interest on investment assets.C. Includes assets that are very liquid and have original maturities of three months or less.D. The percent of total debt represented by a company's cash account.E. These activities include only purchases made with borrowed funds.F. Where cash flows from operating activities are calculated by converting each revenue and expense item from an accrual to a cash basis.G. This ratio multiplies net income by the average rate of interest the company receives on its investments.H. This ratio uses net income instead of operating cash flow to Analysis a company's ability to finance the cost of its…
Which of the following statements about the direct and indirect methods for presenting Cash Flow Statement is NOT true? According to the indirect method, cash flows begin with net income or loss and is followed by subsequent additions to or deductions from that amount for non-cash revenue and expense items, resulting in cash flow from operating activities. The direct method is based on use of actual cash inflows and outflows from a company’s operations. Using direct and indirect methods leads to different amounts shown as cash flow from operations, investing, and financing activities. The cash flow statement, income statement and balance sheet are interconnected: the cash flow amount is equal to the corresponding income statement amount plus or minus the change in the related balance sheet account.
Differentiate between a balance sheet and an income statement of a listed company. How are the two statements related? Why is it often necessary to standard the items in the financial statements? Describe how this could be implemented. How does the statement of cash flows differ from the income statement? What are the various components of the cash flow statement? Describe the contribution of each of the components in terms of their importance to the generation of cash of a company? Explain what is meant by the following statement: ‘A ringgit today is worth than a ringgit to be received in future.” Describe the possible factors contributing to this situation. Describe the essential differences between the following cash flow streams: Annuity versus perpetuity Annuity due versus ordinary annuity Illustrate with an example each. What is a bond sinking fund? What is the purpose of establishing a sinking fund? Are bonds that provide for a sinking fund regarded as being risker than…
Question: Explain the concept of a cash flow statement in financial reporting and its importance in assessing a company's financial health. Provide an example to illustrate the preparation of a cash flow statement.
There are three sections of the cash flow statement (operating, investing, and financing). In your opinion, discuss which section is the most important and reasons the cash flow statement is different from the cash basis. Defend your position. As an extension of this conversation, discuss ways that the cash flow statement could be manipulated.
On the statement of cash flows prepared by the indirect method, the Cash flows from operating activities section would include a. receipts from the sale of investments b. receipts from the issuance of capital stock c. gains or losses on fixed assets d. payments for cash dividends

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