The Statement Of Cash Flows Is A Financial Statement Essay

1835 Words Dec 30th, 2015 null Page
The statement of cash flows is a financial statement that explains where a company got its cash, how it spent its cash, and how much cash was held during a period (Kemp & Waybright, 2013). The two different formats that can be used when creating a statement of cash flows are the indirect method or the direct method. Both of the methods will report the same net cash from operating activities, investing activities, and financing activities. The only difference between the two methods is how the operating activities are formatted and recorded. I will discuss the difference between the indirect and direct cash flow methods in regards to the operating, investing, and financing activities as well as the relationship between the beginning cash balances for the prior period and the current cash balances for the current period. An accountant must decide which format to use when creating a statement of cash flows, either the direct or indirect method. Most businesses prefer the indirect method because it is easier to see the change in net cash from operating activities. When creating a statement of cash flows using the indirect method, an accountant must begin with the operating activities. The indirect method uses the net income from the income statement and then makes adjustments to find net cash for the operating activities. The adjustments need to be added or subtracted depending on each entry. For example, a depreciation expense taken from the income statement must be added to…

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