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the Jan Bell use to prepare its statement of cash flows? How do you
know? Describe the differences between the method used by the
company and the other, more commonly used method?
Direct Method
Direct Method disclose operating cash Inflows and operating
cash out flows by use in the operating activities of the cash flow statement under
the direct method the statement of cash flows reports net cash flows from
operations so the company use different tools in direct method like cash sale , cash
purchase , cash selling and administrative expense , cash income taxes etc
Indirect Method
Indirect Method uses net income as a starting point in the
computation of net cash flow from operating activities so the net cash flow from
operating activities fall In to three categories like non cash expenses , timing
differences and non operating gain and losses so in other words the indirect method
adjust net income for items that affected reported net income butt did not cash so
the company can use four steps in indirect method like starting with net income ,
add back no cash charges ,add back losses and subtract gain from investing or
financing activities and adjust for changes in operating related accounts
Under IFRS and US GAAP both direct and in direct method are
acceptable for financial reporting purpose so the direct method disclose more
information about company so company want to some information is disclose so
the mostly companies used in direct method and jan bell is also follow the indirect
method
The indirect method is most commonly used by companies so the
analyst can generally convert it to the direct format by following a simple three step
process like Aggregate all revenue and all expenses, Remove all non cash items
from aggregated revenues and expenses , converting accrual amount and cash flow
amount