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To determine cash payments for operating expenses for the statement of cash flows using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.
Direct Method
In cash flow reporting, it involves directly identifying and reporting major classes of gross cash receipts and payments.
Operating Expenses
Costs associated with the day-to-day operations of a business, excluding direct labor and direct materials, such as rent, utilities, and office supplies.
Prepaid Expenses
Payments made for goods or services to be received in the future, recorded as assets until they are fully utilized or consumed.
- Familiarize yourself with the effect that changes in current assets and liabilities have on the cash flows from operating activities.
- Know the adjustments for non-operating expenses and non-cash transactions in preparing cash flows from operating activities.
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Learning Objectives
- Familiarize yourself with the effect that changes in current assets and liabilities have on the cash flows from operating activities.
- Know the adjustments for non-operating expenses and non-cash transactions in preparing cash flows from operating activities.
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