When we talk about cash flows, the words of \u2018direct\u2019 and \u2018indirect\u2019 are often spoken. Yes, the first and only requirement for the statement of cash flows is that real cash had to move, but there are two ways of showing the movement. With this post we\u2019ll cover the \u2018direct\u2019 method. The direct showing of cash flows is something that is more widely used since it has a fairly easier concept as opposed to \u2018indirect\u2019. <\/p>\n
The cash flows from investing and financing activities are always presented using the direct method meaning that they are not changes of certain balances but real proceeds or charges from certain activities. This in a nutshell is what the direct method really is \u2013 an actual cash movement from an activity. A company bought a truck and as a result the price paid is the \u2018direct\u2019 cash outflow. If another truck was sold, then the proceeds are \u2018direct\u2019 inflow of cash.
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\nWhen the investing and financing activities are always presented using the direct method, for the operating cash flows the other method of presentation shows up \u2013 the \u2018indirect\u2019 one. One of the main pros for direct method is the fact that it\u2019s simple. You paid 100; you also display an outflow of 100. <\/p>\n
With this \u2018pro\u2019 in mind, note that cash flows from operating activities may be huge amounts displayed. As a result counting the in and out flows for all those operating activities may get you wrong somewhere. So there\u2019s a \u2018con\u2019 for you just here. The \u2018direct\u2019 method requires that you display actual movements of cash meaning basically that the all the debits and credits on the bank account are all displayed on the statement of cash flows. Under \u2018Operating activities\u2019 the result may shows up huge amounts and compared to \u2018indirect\u2019 method, the analyzing factor is rather difficult, because it does not give you instant info of the balance sheet but more of the income statement. But we\u2019ll come to this in our post about \u2018indirect method\u2019 in more detail. <\/p>\n
Now, to summarize of what we just discussed, the \u2018direct\u2019 method of showing the cash flows means presenting actual cash movements for each activity. This is a simpler approach, however, not the only one. <\/p>\n","protected":false},"excerpt":{"rendered":"
When we talk about cash flows, the words of \u2018direct\u2019 and \u2018indirect\u2019 are often spoken. Yes, the first and only requirement for the statement of cash flows is that real cash had to move, but there are two ways of showing the movement. With this post we\u2019ll cover the \u2018direct\u2019 method. The direct showing of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28,50],"tags":[],"class_list":["post-1660","post","type-post","status-publish","format-standard","hentry","category-4-reporting","category-4-5-statement-of-cash-flows"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1660","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=1660"}],"version-history":[{"count":3,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1660\/revisions"}],"predecessor-version":[{"id":2529,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/1660\/revisions\/2529"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=1660"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=1660"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=1660"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}