Intermediate Accounting

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Business Finance

Description

1. Differentiate between the direct method and the indirect method by discussing each method. In your opinion, which method provides the most useful information to creditors? Provide support for your rationale

2. Explain how the amount of cash payments to suppliers is computed under the direct method


3. Please provide two more examples of the how the statement of cash flows is useful to investors and creditors.

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Explanation & Answer

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Cash flow statement is a key components of the financial statements of the company
(O'Bryan, 2010). Cash flow statement of a company represents the cash balance (beginning and
ending) of a specific date, and cash flows (operating, investing, and financing) of the company
for a period (Luecke, 2015).
Cash flow statement of a company can be prepared in two format including direct format
and indirect format. Under direct method cash flow statement, cash flow from operating
activities is determined by directly by determining the cash inflows (received), and cash outflows
(paid) for vario...


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