If an adjustment to the amount of net income is in parentheses, it is subtracted from net income. Since the net income was based on the accrual method of accounting, the amount of net income must be adjusted to the cash amount. Under the indirect method, the SCF section cash flows from operating activities begins with the amount of net income, which is taken from the company's income statement. However, the indirect method is the dominant method used and the one we will explain. Indirect Method for Preparing the Cash Flow StatementĬompanies may choose to use either the direct method or the indirect method when preparing the SCF section cash flows from operating activities. If the amounts had added up to a negative amount, the description would be "Net cash used by operating activities". Hence, it is described as "Net cash provided by operating activities". Note that the combination of the positive and negative amounts in this section add up to a positive 262,000. Here is the operating activities section of Example Corporation's SCF which we will be referring to in our discussion: Operating activities are the business activities other than the investing and financial activities. Operating activities are also referred to as company operations. The first section of the statement of cash flows is described as cash flows from operating activities or shortened to operating activities. Disposal of Assets, July Transactions and Financial Statements
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