Post on 17-Dec-2014
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PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA
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The Direct Method of Determining the Net Cash Provided by Operating Activities Appendix 14A
14A-2
Learning Objective 4
Use the direct method to determine the net cash provided by operating
activities.
14A-3
Computing Net Cash Provided by Operating Activities
The direct method computes net cash provided by operating activities by reconstructing the
income statement on a cash basis from top to bottom.
Net cash provided by operating activities under the direct method will
always agree with the amount computed using the indirect method.
14A-4
Similarities and Differences in the Handling Data
Adjustments for accounts that affect revenue are the
same in the direct and indirect methods.
Adjustments for accounts that affect expenses are
handled in opposite ways for the direct and indirect
methods.
14A-5
Similarities and Differences in the Handling Data
Under the direct method, no adjustments for gains and losses on the sale of
assets are needed.
14A-6
Special Rules—Direct and Indirect Methods
Requires a reconciliation between net
income and the net cash provided by
operating activities
Direct Method
Requires disclosure of
amount of interest and income taxes
paid during the year
Indirect Method
14A-7
End of Appendix 14A