Statement of cash flows
In the video in the Learning Activity “Understanding the Statement of Cash Flows” Tony Bell mentions an easy way to determine whether the indirect or direct method is used in developing the Statement of Cash Flows. What does he say this is? Conduct your own research and list two companies that use either the indirect method or the direct method. Provide a link to each company’s Statement of Cash Flows, and list two advantages for the method that you prefer.
Understanding the Statement of Cash Flows
Introduction
In this video, Tony Bell walks through an analysis of the statement of cash flows. Reference his earlier videos for a review of construction of the statement of cash flows (the direct versus indirect method). Take notes in your Learning Journal as you watch and discuss any questions related to this activity in Social Learning.
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Answer preview
An organization that uses the direct method is the United Way of Saskatoon and Area, where it begins by recording net revenue. Apple Inc is an excellent example of a company using an indirect cash flow. In this method, Apple Inc. Presents operating cash flows as a reconciliation of the cash flow or profits. The company begins with computing the operating cash, where it deducts investing cash flows and financing cash flows.
In my case, I would prefer the direct method over the indirect cash flow method. One advantage associated with the indirect is simple to use. It improves the prediction ability of the organization’s future operating cash flows. In conclusion, the cash flow statement includes all the cash sales and expenses paid in cash. In short, the cash flow statement is mainly used to measure how well an organization can generate cash to fund its operating expenses and pay a debt obligation.
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Statement of cash flows
