Question

Explain why cash payments during the period for purchases and for salaries are not specifically reported as cash outflows on the statement of cash flows, under the indirect method.

Answer 1

Explain why the cash flow statement prepared using the indirect method does not explicitly report cash outflows during the period of purchases and salaries. and do not report spills.

In most cases, cash flow and net income statements differ due to the time lag between recorded sales and actual payments. The situation is controlled when the billing customer pays cash in the next period.

The main advantage of the indirect cash flow method is that it provides a net income and cash flow adjustment. The indirect method also helps financial statement users to better understand the various relationships between financial statements and is an easy way to prepare cash flow statements.

Which of the following statements is correct when using the indirect method to prepare the cash flow statement? Income from the sale of equipment is added to the net income of the operations section. Losses on land sales are added to the operating section's net income.

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