ACCT 002 Lecture Notes - Lecture 19: Cash Flow, Income Statement, Net Income

• School: College of The Sequoias
• Department: Accounting (ACCT)
• Course: ACCT 002
• Professor: cooper

Document Summary

The net cash provided by operating activities can be determined using either the direct method or the indirect method. Under the direct method, the income statement is reconstructed on a cash basis from top to bottom. Operating cash outflows are subtracted from operating cash inflows to arrive at net cash flow from operating activities. Under the indirect method, the cash provided by operations is determined by adjusting net income to a cash basis. In practice, the indirect method is used far more frequently than the direct method on external financial reports. The statement of cash flows is based on the following equation: Net cash flow = net income changes in noncash assets + changes in liabilities . Fasb requires that financing and investing activities should be presented in gross amounts rather than in net amounts. This rule requires special treatment of gains and losses. The gross method of reporting does not extend to operating activities.