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Cash Flows from Operating Activities Can Be Calculated Using the Indirect

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Essay

Cash flows from operating activities can be calculated using the indirect or direct method. Briefly describe how the two methods differ yet arrive at the same information about the net cash flows from operating activities.


Definitions:

Operating Activities

Activities directly related to the production, sale, and delivery of a company's goods or services, reflecting its core business operations.

Indirect Method

A way of calculating cash flows from operating activities in the cash flow statement by adjusting net income for changes in non-cash accounts.

Net Decrease

A reduction in the quantity or value of something, calculated by subtracting the final figure from the initial figure.

Inventories

Quantities of goods that are held by a company for the purpose of resale or production.

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