Background

“Cash Flow Statement – Direct & Indirect Method
Cash Flow Statement also known as Statement of Cash Flows is a statement which shows the Changes in the Cash Position of an organisation between 2 periods. Along with showing the changes in the Cash Position of an organisation, it also depicts the reasons for such change during the period.

The main reason for the preparation of the Cash Flow Statement is that the Income Statement of an enterprise is always prepared on an Accrual Basis and it may show profits in the Income Statement but the Cash received out of these profits may be low to run the business or vice-versa. “

Provided:
An excel template has already been provided for you. This will be your answering sheet to submit.
You must make use of this excel sheet and make use of excel formats and layouts to submit neat and tidy cash flow templates.

Required:

1. Cover page sheet:
Please complete your student information on the cover page.

2. Cash flow Quiz sheet:
Complete the following Cash flow statement quiz:
For all questions assume that the indirect method is used.
There are four parts to the Statement of Cash Flows (or Cash Flow Statement): Operating Activities
Investing Activities Financing Activities Supplemental Disclosures

For each of the following items, indicate which part will be affected.
1. Depreciation Expense.
2. Proceeds from the sale of equipment used in the business.
3. The Loss on the Sale of Equipment in Question #2.
4. Declaration and payment of dividends on company’s stock.
5. Gain on the Sale of Automobile formerly used in the business.
6. The proceeds from the sale of the automobile in Item #5.
7. An increase in the balance in a retailer’s Merchandise Inventory.
8. An increase in the balance in Accounts Payable.
9. Retirement of long-term Bonds Payable.
10. Purchase of Treasury Stock (company’s own stock).

● Cash flow statement: Direct method sheet:
You are required to prepare a template of how a complete cash flow statement will look based on the direct method.
List at least 2 advantages and 2 disadvantages of using the direct method when it comes to cash flow statements.

● Cash flow statement: Indirect method sheet:
You are required to prepare a template of how a complete cash flow statement will look based on the indirect method.
List at least 2 advantages and 2 disadvantages of using the indirect method when it comes to cash flow statements.

● Cash flow statement: Conclusion Direct vs Indirect
You are required to summarise what the differences are between the direct method vs the indirect method.
Clearly state your conclusion: Is there a difference in the amounts calculated between the two methods?

Get Answers on Financial Accounting Questions

Answer 1: With respect to the depreciation expense, it will directly impact the cash flow from operating activities in the cash flow statement.

Proceeds from the sale of equipment used in the business will impact the cash flow from investing activities in the cash flow statement.

Get completed answers on the questions above from financial management from the accounting assignment help South Africa experts of Student Life Saviour.