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∙ 12y agoDepreciation expenses
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∙ 12y agoThe main difference between the direct method and the indirect method involves the cash flows from operating activities. Under the direct method, the cash flows from operating activities will include the amounts for lines such as cash from customers and cash paid to suppliers. In contrast, the indirect method will show net income followed by the adjustments needed to convert the total net income to the cash amount from operating activities.
indirect method is that method in which net income from income statement is adjusted for non cash items like deprecation to arrive at actual cash flow from operating activities.
Operating Profit is earnings BEFORE interest and taxes are deducted but AFTER overheads and other indirect costs are deducted from your Gross Profit. Once you have this Pretax Profit you deduct from your Operating profit any one off items and interest payable to arrive at Net Profit. It is then at this stage that tax is calculated and deducted from the Net Profit to arrive at Retained Earnings procedure - dividends So; Sales/Turnover - COGS/COS = GP - Expenses (but not 1 off/interest payments) = OP - 1 off items and interest = NP
The Operating Activities portion of the Statement of Cash Flows is affected by whether the direct or indirect method is used.
All fixed operating expenses from overhead (indirect) departments
It should be deducted from operating activities and should be included in investing activities as dealing with assets is a part of investing activities.
While calculating cash flow from operating using indirect method, Loss on sale of equipment is added back to net income as due to loss there is no cash outflow occurs.
Dividend declared and paid is shown under cash flows from financing activities in cash flow statment as it is not primary operating activity of business.
The main difference between the direct method and the indirect method involves the cash flows from operating activities. Under the direct method, the cash flows from operating activities will include the amounts for lines such as cash from customers and cash paid to suppliers. In contrast, the indirect method will show net income followed by the adjustments needed to convert the total net income to the cash amount from operating activities.
TDS means Tax Deducted at Source.....deducted by employers usually
in cash flow statement using indirect method actual net profit from income statement is adjusted for non cash items to arrive at actual cash from operating activities.
indirect method is that method in which net income from income statement is adjusted for non cash items like deprecation to arrive at actual cash flow from operating activities.
Operating Profit is earnings BEFORE interest and taxes are deducted but AFTER overheads and other indirect costs are deducted from your Gross Profit. Once you have this Pretax Profit you deduct from your Operating profit any one off items and interest payable to arrive at Net Profit. It is then at this stage that tax is calculated and deducted from the Net Profit to arrive at Retained Earnings procedure - dividends So; Sales/Turnover - COGS/COS = GP - Expenses (but not 1 off/interest payments) = OP - 1 off items and interest = NP
The Operating Activities portion of the Statement of Cash Flows is affected by whether the direct or indirect method is used.
Direct and indirect method of preparing cash flow statement is same with only one difference which is under indirect method 'Cash flow from operating activities' is prepared by adjusting the net profit amount for non cash items while 'Cash flow from financing activities' and 'Cash flow from investing activities' is prepared in same manner in both methods.
the advantage is that it focuses on the differences between net income and net cash flows from operating activities. Meaning, it makes it more useful to relate the statement of cash flows and the income statement and balance sheet. Also it is less costly to change net income to net cash flow from operating activities.
Adjust the net income for non cash items to find cash flows from operating activities.