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The manner of reporting cash flows from investing and financing activities will be different under the direct method as compared to the indirect method.
Direct Method
An accounting method used in the cash flow statement to show the specific sources of operating cash receipts and payments, contrasting with the indirect method.
Investing Activities
Transactions involving the purchase and sale of long-term assets and investments, a component of a company's cash flow statement.
Financing Activities
Transactions that result in changes in the size and composition of the equity capital or borrowings of a company.
- Distinguish between the direct and indirect approaches in reporting operating activities cash flows.
- Accurately recognize and categorize cash inflows and outflows within the relevant areas of the cash flow statement.
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Learning Objectives
- Distinguish between the direct and indirect approaches in reporting operating activities cash flows.
- Accurately recognize and categorize cash inflows and outflows within the relevant areas of the cash flow statement.
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