Question

Two methods can be used to construct a statement of cash flows: the direct method and the indirect method. Under the indirect method, data from three financial statements are used. These statements include _______ and _________ .

Answer 1

Answer:

Two balance and one income statement

Explanation:

The cash flow statement includes three types of activities under the indirect method which are listed below:

1. Operating activities: This covers all transactions that after net income impact the working capital. It would subtract the rise in current assets and a reduction in current liabilities, while adding the decline in current assets and a rise in current liabilities.

It would adjust those changes in working capital. For fact, the depreciation cost is applied to the net income, and the loss on asset sales is added while the benefit on asset sales is deducted

2. Investing activities: it tracks operations that include buying and selling long-term properties. The buying is a cash outflow while the sale is a cash inflow

3. Financing activities: it records transactions that have a bearing on long-term debt and equity balance of shareholders. Share issue is a cash inflow while redemption and dividend are cash outflows.