Direct and Indirect

In: Business and Management

Submitted By jessikaray
Words 492
Pages 2
Direct and Indirect Cash Flows
XACC/290
July 9, 2014
Jessika Ray
Christopher Phillips

Direct and Indirect Cash Flows
When a company is trying to convert the net income from an accrual basis to a cash basis they would use either the direct method or the indirect method. When completing the conversion the company will have the ability to come to the same total amount for the “net cash provided by operating activities.” Even though the company can use either method to come up with the same total there are different steps used with each method.
The method which is used by most companies is the indirect method because it is more cost effective and easier to use. This method is also the best way to reconcile reported net income to cash provided by operations. When computing the cash flow from operations you would begin with the net income for the company. Then add back any non-cash expenses such as depreciation and amortization. You will also need to make adjustments for gains and losses on any sales or assets during the period in question. When making the adjustments you will need to add the losses in and subtract out the gains. There needs to be an account for changes in any non-cash assets. These are any current assets the company has during the period. Finally, you must account for changes in any and all assets and liabilities. These assets and liabilities do not include notes payable or dividends payable.
On the other hand the other method is the direct method. This method is not as appealing to companies because it requires more information than the indirect method. The company would be required to produce any and all cash receipts from sales and add interest and dividends. Then you would deduct any cash payments which were used for purchases, operating expenses, interest, and income taxes. Each one of these steps has its own equation which needs to be…...

Similar Documents

Direct and Indirect

...DIRECT AND INDIRECT APPROACHES In writing letters, memos, and e-mail messages (the focus of Chapters 2 and 3), one issue that you'll need to consider is whether your message is one that is likely to be well-received or one that may encounter resistance or ill-will--a "bad news" message of some type. Searle’s spends a good bit of time in Chapter 1 discussing tone and making sure to use a reader-centered perspective that utilizes a "you" approach and positive wording. In addition to a reader-centered perspective, however, you also should consider the difference between what is called a direct and an indirect approach when organizing letters, memos, and e-mail messages, especially ones that convey bad news. DIRECT APPROACH The direct approach anticipates no resistance to its message--for instance, "you've been hired," "your order is being shipped today," or even "the project will be done in one week." In this case, organizing your message is simple. Searle’s mentions that memos and letters should have some kind of brief introduction, sometimes as its own paragraph. If you're using the direct approach, this introduction is simply a straightforward statement of the main point of the message. For instance, if you are writing a letter to confirm an order, simply begin by stating, "We have received your order for part #23-B-4439 and are shipping it today." Then the rest of the letter can provide details like shipping time, cost, etc. Whenever possible, use the direct......

Words: 668 - Pages: 3

Direct and Indirect Cash Flows

...Brandy R. Hatcher Direct and Indirect Cash Flows July 3, 2013 The statement of direct and indirect cash flows are financial statements that companies prepare each month. Both methods report the cash flows differently but in the end each statement will result in the same amount. The operating activities provides a company with financial flexibility to invest in other parts of its business such as purchasing new equipment or paying off debt. Investing activities pertain to making capital expenditures such as new equipment. Financing activities relate to borrowing money, issuing stock or paying dividends. A direct statement of cash flow identifies a company's sources and uses of cash. The statement has three sections that report cash receipts and cash payments. These sections include operating, investing and financing activities. Operating activities include receipts and payments from normal business operations while investing activities include the purchase or sale of long-term asset and investments. Lastly, financing activities relate to making payments to creditors and investors. The indirect method reports operating cash flows based on changes in the balance sheet from period to period as they relate to net income. Instead of reporting the total cash received from customers an indirect statement only lists the change in cash received from the previous period. The Financial Accounting Standards Board allows both statements of cash......

Words: 373 - Pages: 2

Direct and Indirect Effects of Transformational Leadership

...| | | Direct and indirect effects of transformational leadership on innovative behavior | | | | | | Table of Contents Abstract 3 Introduction 4 Theoretical framework 8 Leadership and innovative behavior 8 Transformational leadership and innovative behavior 9 The mediating role of affective commitment between transformational leadership and innovative behavior 11 The mediating role of innovative climate between transformational leadership and innovative behavior 15 The moderating role of affective commitment between transformational leadership and employees’ innovative behavior 18 The moderating role of innovative climate between transformational leadership and employees’ innovative behavior 19 Methods 20 Participants and Procedure 20 Measures 22 Data analysis 24 Results 25 Descriptive statistics and scales 25 Correlation analysis 26 Testing hypothesis 27 Discussion 29 Limitations and recommendations 33 Directions for future research 35 Practical implications 36 References 37 Appendix 42 Tables……………………………………………………………………………………………………………………………………………42 Figures. 45 Company report 46 Abstract This study aims at investigating how transformational leaders directly and indirectly (via affective commitment to the organization, the career, the leader, and the team and innovative climate) affect employees’ innovative behavior. The hypotheses are tested by applying quantitative analyses to data collected from 39 employees of a...

Words: 15273 - Pages: 62

Direct and Indirect Cash Flows

...Direct and Indirect Cash Flows XACC/291 August 20, 2014 Direct and Indirect Cash Flows The direct cash flow method is the method that includes a large amount of detail and organization in comparison to the indirect cash flow method. Direct cash flow statements start out with the three sections that contain cash flow which are operational activities, investments, and financing activities. The operating activities section will include receipts and payments that are related to the day to day operations of the company and normal business transactions for the company. The investing section will include details about the purchase or sale of long-term assets and investments like property. Lastly, the financing activities will have receipts for borrowing money as well as money that has been paid to investors and creditors. Unlike the direct method, the indirect method is a more accrual based method that does not contain as much information. Instead of preparing statements using receipts and paperwork to start a company will use the income statement to get a starting figure for the net income of the company. Then from the net income the accountants will make adjustments for all noncash items so that the statement goes from an accrual based income statement to a statement that only includes cash related items. This method does not require receipts and paperwork to get to a cash flow total because the accountants remove anything that is noncash and everything by default should......

Words: 415 - Pages: 2

Direct and Indirect Cash Flow

...Direct and Indirect Cash Flows Melita Bryant XACC/291 08/26/2014 Richard Fielden Direct and Indirect Cash Flows The statement of cash flows is important to a business, it highlights the way in which a company is receiving and spending its money. This process is also complicated by the way in which the business chooses to come to the end results. While the direct and indirect methods of preparing the statement of cash flows come to the same end result, their method is a little different. The operations section of the statement of cash flow is the only one that allows the use of either of these methods. The main difference between the direct method and the indirect method involves the cash flows from operating activities, the first section of the statement of cash flows. (There is no difference in the cash flows reported in the investing and financing activities sections.) Under the direct method, the cash flows from operating activities will include the amounts for lines such as cash from customers and cash paid to suppliers. According to "Cash Flow Statement Direct Method" (2014), “The direct method of presenting the statement of cash flows present the specific cash flows associated with items that affect cash flow”. In contrast, the indirect method will show net income followed by the adjustments needed to convert the total net income to the cash amount from operating activities. The direct method must also provide a reconciliation of net income to the cash......

Words: 603 - Pages: 3

Direct and Indirect Cash Flows

...Direct and Indirect Cash Flows XAC/291 When a company has to revenue and expenses on its income statements, they often have the choice of using a direct or indirect presentation of cash flow. Direct presentation of cash flow begins with cash from sales and is deducted from the operating expenses to conclude to a net cash flow from expenses. Cash from operations come from customers, cash paid to suppliers, employees and other expenses. One of the reoccurring problems with the direct presentation of cash flows is the inability to find or track information in regards to the cash flows. Companies would have to make alterations in order to find where cash and credit would have come from in hopes to narrow down their search for specific information. The indirect presentation of cash flow begins with the net income from the income statement, unlike the direct presentation of cash flow, and separated into three sections known as Expenses, ash, and Revenues. Ultimately, what is being done is that the net income would be adjusted from accrual to cash. Accounts that fall into the use of the indirect method are inventory, supplies, accounts receivable, unearned revenues, liabilities, and prepaid assets. Depreciation, amortization, and losses are some of the methods that would be typically used while performing an indirect presentation of cash flows. The indirect method uses all available information to come to a conclusion and is often said to be the...

Words: 415 - Pages: 2

Direct and Indirect Cash Flows

...Direct and Indirect Cash Flows Companies will typically prepare a cash flow statement every month to determine when it can be expected that an inflow of cash will begin. Officially, these are known as the statement of cash flows. An accounting department can choose from two different methods to prepare the cash flow statements, these are the direct and indirect methods. Each of these methods will approach the reporting of cash flow from different angles, but each method will result if the same ending number for the accounting period. The direct method of cash flow statement will identify the sources of cash and the uses divided into three sections which contain the cash receipts and cash payments. These include operating, investing and financial activities. The indirect cash flow statement method does not contain as much information as the direct method. A company will prepare an indirect statement, starting with a net income that is reported in the monthly income statement. The accountants will then make adjustments for all non-cash items, essentially taking the accrual based statement and converting it to cash based. A company can include a disclosure using either the direct or indirect cash flow statement. The FASB often requires that a company discloses any non-cash financing and investing activities along with the cash flow statement. Both cash flow statement preparation methods are acceptable, but the Financial Accounting Standards Board prefers that companies use...

Words: 372 - Pages: 2

Direct and Indirect Cash Flows

...Direct & Indirect Cash Flows The cash flow statement is an important financial document that gives an in depth view of a company’s finances. It specifically focuses on the company’s cash flow into and out of the business. There are two methods for preparing and presenting the cash flow statement, the direct method and the indirect method. The two methods of reporting affect only the presentation of the operating section. The remaining two sections (the investing and financing sections) remain the same regardless of which method is used. With the direct method the operating activities section will include the amounts of cash from customers and cash paid out to suppliers. When preparing a cash statement, money spent is subtracted from money received to calculate net cash flow. Depreciation is not included because it is not money spent or received, it is an expense that affects net profits. The indirect method focuses on net income and net cash from operations. One would adjust net income to convert it from an accrual to a cash basis. One would then have to make some adjustment and add back non-cash expenses such as depreciation, amortization, loss provision for accounts receivable and any losses on the sale of a fixed asset. One can also adjust net income for changes between the starting and ending account balances in current assets excluding cash and current liabilities for the period The Financial Accounting Standard Boards recognizes and allows both methods of cash......

Words: 508 - Pages: 3

Direct and Indirect Cash Flow Method

...Direct Vs. Indirect Cash Flow Method A company reports revenues and expenses on its income statement. Since most companies use accrual accounting, the income statement reveals little about cash flowing into and out of the business. To provide an understanding of cash flows, companies turn to the cash flow statement, which includes a section that restates income on a cash basis. You can choose between the direct and indirect methods to report operational cash flow. Cash Flow Statement The statement of cash flows contains sections for three sets of activities: operating, investing and financing. Only the operations section deals with the question of direct versus indirect cash flows. By comparing the operations section with the income statement, you can identify the differences in timing between income and cash collections. Comparison also reveals timing differences between expenses and cash payments. Large differences might indicate that the company is very aggressive in recognizing income, or that the company spends a lot of cash to buy or maintain assets, a fact not apparent from the income statement. Direct Method When using the direct method, you list cash flows in the operations section of the cash flow statement. Cash flows due to operations arise from customer collections and cash paid to suppliers, employees and others. The section also reports cash paid for income tax and interest. The problem in trying to use the direct method is that a company might not keep......

Words: 905 - Pages: 4

Direct and Indirect Cash Flows

...Direct and Indirect Cash Flows A company reports revenues and expenses on an income statement which reveals little about cash flowing into and out of the business. Because of the lack of cash flow information, companies turn to a cash flow statement that has a section to restate income on a cash basis. There are two choices to report operational cash, direct and indirect methods. When the direct method is used, cash flows are listed in the operations of the cash flow statement. These cash flows come from customer collections, cash paid to suppliers, employees, and also reports of cash paid for income tax and interest. A problem using the direct method is the company might not keep the information in the required form making it necessary to make special provisions to track sales separately. Using the indirect method you can adjust the net income to change it from an accrual to a cash basis. This means adding back non-cash expenses such as depreciation, amortization, loss provision for accounts receivable and any losses on the sale of fixed assets. The indirect method uses readily available information and most companies find it easier to use. Essentially, the indirect preparation method takes an accrual-based income statement and converts it to a cash- based income statement. Both flow statement preparation methods are allowable under basic accounting standards, but the Financial Accounting Standards Board prefers the direct method cash flow statement for public......

Words: 408 - Pages: 2

Direct and Indirect Staining

...the four activities of fresh wet mount, direct staining using crystal violet, and indirect staining using both Congo Red and crystal violet. The fresh wet mount slides, as the name suggests, is bathed in some form of liquid, whether it is water or some kind of liquid that the organism itself came from. The microscopic images produced are clear or somewhat colorless, but the edges are distinct and we can see the shapes of the bacteria very well. Direct staining using crystal violet produces bluish or purplish colored bacteria and the shapes are well distinguished also Indirect staining using Congo Red is like the negative film version of direct staining. The bacteria or organism is left uncolored but it can be seen because of the reddish background that surrounds it. Since it leaves the inside of the bacteria untouched, we can see the inside of the cell wall. B. Discuss whether you were able to identify specific bacterial morphologies. Looking at the prepared slides on the Lab Manual, I was able to identify the various bacteria via their shapes. Cocci are round shaped bacteria, while bacilli look to me like medicine capsules or very small submarines. The slides with spiral bacteria seem to have multiple arms sticking out of a round center, kind of like the spokes of a bicycle wheel or a clock with multiple hands. The rest are variations on those shapes C. Explain the difference between direct and indirect staining. Direct staining is the technique of applying a...

Words: 670 - Pages: 3

Direct and Indirect Costs

...DIRECT AND INDIRECT COSTS Costs are those expenses which are both direct and indirect expenses of operating a business. The general guideline for distinguishing costs is that direct costs are any expenses directly related to providing the product and/or service to the customer and are normally affected by volume, whereas indirect costs are those expenses necessary to maintain the operating business and are not affected by changes in the volume of business. In addition, a subcategory of direct costs breaks out the major expenses entailed in the direct production and service of the product. The following listing identifies the various expense areas of direct and indirect costs: Direct operating expense a. Linen, china, glass and flowers b. Costs of cleaning and associated supplies c. Employee uniforms and laundry costs d. Cooking equipment, utensils, and kitchen tools e. Restaurant decorations, including flowers f. Menus, wine lists, and other promotional material g. Licenses and permits Utility expense a. Heat, light and power including any type of energy use (gas, oil, electricity and other canned or bottled fuel used in restaurants) b. Water, ice and trash removal Administrative expense Costs directly related to the operation of the business management of the restaurant, including a. Telephone services and equipment rental b. Computer and data processing costs c. Office supplies and printed materials used in the business management of the......

Words: 345 - Pages: 2

Direct and Indirect Cash Flows

...Direct and Indirect Cash Flows The statement of cash flows is one of the components of a company’s set of financial statements that show the changes in the balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities (Accountingtools, 2016). Companies must adjust the effect of the use of accrual accounting to determine cash flows. In order to prepare this statement, the information needed usually comes from three sources: comparative balance sheets, current income statement, and any additional information such as transaction data that are needed to determine how cash was provided or used during the period. In order to determine net cash provided/used by operating activities a company must convert net income from an accrual basis to a cash basis. This conversion can be done by two different methods: the indirect method or the direct method. The indirect method works by adjusting the net income for items that do not affect cash such as depreciation, amortization, loss provision for accounts receivable and any losses on the sale of a fixed asset. According to Bassam (2014) these are some of the advantages of the indirect method: “provide more meaningful information, tells reader if sales are increasing or decreasing, easier for the preparers to create, simple for users to analyze…” The second method is the direct method. The direct method shows operating cash receipts and......

Words: 414 - Pages: 2

Direct and Indirect Cash Flows

...Direct and Indirect Cash Flows Jayla West ACC291 February 21, 2016 Debra Peterson Direct and Indirect Cash Flows The direct method for creating a cash flow statement reports major classes of gross cash receipts and payments. Under IAS 7, dividends received may be reported under operating activities or under investing activities. If taxes paid are directly linked to operating activities, they are reported under operating activities; if the taxes are directly linked to investing activities or financing activities, they are reported under investing or financing activities. Generally Accepted Accounting Principles (GAAP) vary from International Financial Reporting Standards in that under GAAP rules, dividends received from a company's investing activities is reported as an "operating activity," not an "investing activity." The indirect method uses net-income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts from all cash-based transactions. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions. The indirect method uses readily available information and most companies find it easier to employ. Management and shareholders might fret if a company consistently reports net income exceeding cash flows -- they will......

Words: 488 - Pages: 2

Indirect and Direct Racism

...Indirect and Direct Racism Racism is a blot on society that has transgressed mankind over hundreds of years. It is conscience of humans that few things are far superior to others. This can be explained in the detail with example of skin color, origin and culture which are the key factors in defragmenting the human society which eventually leads to racism. Cultural difference between various communities was one of the reason for the development of racism. As societies tries to bind itself together it compels people to adapt to different cultures, influencing hatred and eventually given rise to racism. Racism still exists in today’s society in both direct and indirect ways. This can be explained with the recent examples of Asians been targeted in the western world. Asians are attacked because they have different culture and when they settle in western world they bring uneasiness to western lifestyle thus leading to racism. As the author quotes in this article “Under a byline of Lian Ji, the article published Wednesday used broken English and spouted racial stereotypes to bash the school for his rejection.” The author explains that the student mentioned in the article feels discriminated against due to the fact that he was rejected from Preston University. Clearly showing the flow of racism in the atmosphere within the article, impacting people directly. Skin color is another factor that also has influenced racism. Though subconsciously humans have the tendency to relate......

Words: 585 - Pages: 3

Prospekthüllen DIN A4 genarbt und glasklar Klarsichthüllen, Klarsichtfolie | Mobile Armored Strike Kommand (M.A.S.K.) | Season 1 Episode 23 The Bucket Trap