Q14-5RQ - Horngren'S Financial And Managerial Accounting

Question

Question: Describe the two formats for reporting operating activities on the statement of cash flows.

Step-by-Step Solution

Answer

Answer

 

The two formats for reporting operating activities on the statement of cash flows are:

1. Direct method
2. Indirect method

Step 1: Direct method of reporting operating activities

Particulars	Amount
Receipts:
Collection from debtors
Interest revenue received
Dividends received on investments
Total Cash receipts(a)	XXX
Payments:
To suppliers
To employees
For Interest
For tax
Total cash payments (b)	XXX
Net cash provided/(Used) by operating activities (a) – (b)

Step 2: Indirect method of reporting operating activities

Particulars	Adjustments
Net Income
Depreciation, Depletion, and Amortization Expense	Increase
Gains on Disposal of Long-term Assets	Decrease
Losses on Disposal of Long-term Assets	Increase
Increases in Current Assets other than Cash	Decrease
Decreases in Current Assets other than Cash	Increase
Increases in Current Liabilities	Increase
Decreases in Current Liabilities	Decrease