Statement of Cash Flow

Statement of Cash Flow

Difference between Direct and Indirect Method of Cash Flow

According to Quinn (et al., 2001) the main difference between the two methods is of representation. Among the two methods sections of cash flow from financing and investing activities are the same but the cash flow from operations section is different. In the direct method classes of operating cash received and disbursed is shown as cash received from customers and cash paid to the workers. Direct method tries to develop reconciliation between the incomes statement and the cash flow created by using the cash and accrual accounting methods. On the other hand indirect method provides reconciliation between the income statement and the cash flow from operating activities. In the direct method reconciliation is done by making adjustments in the net income which includes depreciation of plant and machinery or etc. In the indirect method net income is adjusted with the amounts of cash flow from operations, investments and financing activities performed by the company. Among the two methods direct method is most costly to maintain and construct as compared to the indirect method of generating cash flow for a firm. The following is a computation of indirect method for Nest Ltd.

The following is a direct method of Nest Ltd.:

Difference between Operating and Investing Activities in a Cash Flow

According to Weygandht (et al., 2009) all the activities mentioned in Cash flow are different from each other. Similarly there are a lot of differences between operating activities cash flow and cash flow from investing activities. The primary differences between the two activities are: 1) operating activities include daily basis cash transactions generated from operation of a firm and investing activities include cash transactions of investing, purchasing and selling of companies assets during a fiscal year; 2) cash flow of ...