Fin Acc - Chapter 4 Pt 2

GAAP methods of Cash Flows

Direct and Indirect

Indirect Method

Start with NI (accrual) - add back depreciation - everything else is adjustments = Net cash

how are Long term assets/liabilities classified?

investments & financing

Steps of indirect method in order

1. Increase in assets = subtract from NI

2. Decrease in Assets = add to NI

3. Increase in Liabilities = add to NI

4. Decrease in Liabilities = subtract from NI

Direct method

cash effect of each operating activity is reported directly in the statement

Operating activities

in/out flow from actitvites reported in income statement (e.g interest on debt)

investment activities

in/outflow of cash related to aquisition and disposition of:
1. long-lived assets used in operations
2. investment assets

how is investment activities always reported

directly

what is not included in investment activities

purchase/sale of inventory

financing activities

in/outflows related to cash from owners and creditors (e.g. issuing stock, paying dividends)

what’s in investment activities

purchasing/selling: PPE, intangible assets, notes recievable, investment

noncash investing and financing activites

reported either via disclosure note or face of statement