MGT 11A Chapter 12: CHAPTER 12 - pt 3
Document Summary
Only apply to the operating activities section. Separately lists operating cash receipts (such as cash received from customers) and operating cash payments (such as cash paid for inventory) Cash payments are then subtracted from cash receipts. Reports net income and then adjusts it for items that do not affect cash. Does not report individual items of cash inflows and cash outflows from operating activities. Net cash amount provided by operating activities is identical under both the direct and indirect methods. Difference is indirect method is arguably easier. Net income is computed using accrual accounting. Revenues and expenses rarely match the receipt and payment of cash. Indirect method adjusts net income to get the net cash provided or used by operating activities. Ex: we begin with genesis" income of ,000 and adjust it to get cash provided by operating activities of ,000. 1) adjustments to income statement items that do not impact cash.
