Answered: The indirect approach adds all of these…

The indirect approach adds all of these expenses to net income in the operational activities section of the cash flow statement instead of include them in the net income. Please explain.

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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Question

The indirect approach adds all of these expenses to net income in the operational activities section of the cash flow statement instead of include them in the net income. Please explain.

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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