For instance, the net cash flows from operating activities is the same for both methods, and the investing and financing activities are identical for both methods as well.īelow is an example of the format using the indirect method. There are some similarities between the two methods. Note that the operating section line items using the direct method are based on the nature of the cash flows, whereas the indirect method line items are based on their connections with the income statement and working capital accounts. is an example of a statement using the direct method. The statement of cash flows above for Wellbourn Services Ltd. The direct method reports cash flows from operating activities into categories based on the nature of the cash flows, such as: Dividends payable is included with its related retained earnings account. For example, the current portion of long-term debt or lease is included with its related long-term liability account. They are included with their respective account to which they relate. The current portion of long-term debt, including lease obligations and dividends payable, are not considered to be working capital accounts.
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