Check Point: Direct and Indirect Cash Flows
Dana Benton
XACC 291/C - Principles of Accounting II
April 9, 2014
Elizabeth Mullaney

Check Point: Direct and Indirect Cash Flows According to our text, the statement of cash flows reports, cash receipts, cash payments, and net change in cash, due to operating, investing, and financing activities during a set period. The four main reasons this report is helpful to investors, creditors, and others to look at, are simple. The report is helpful to look at the company's ability to produce future cash flow, to pay dividends, for the difference between net income and net cash used by operating activities, and cash investing, and financing transactions during a particular time. (Weygandt, Kimmel, & Kieso, 2010) Most companies use the indirect method. The method adjusts net income for items that do not affect cash. This process is easier and costs less to prepare. The process highlights the difference between net income and net cash flow for the operating activities. The direct method shows operating cash receipts and payments. The direct method results in a better understood report. The drawback of the direct method is it requires more information, and most companies see this as extra work, when to outcome is the same. The Financial Accounting Standards Board is a seven member board. The board consists of accounting professionals, which establish and coordinate the standards of accounting and accounting reporting, in the United States. The standards are known as the generally accepted accounting principles or GAAP. This group is recognized as an authority by the Securities and Exchange Commission.

The Financial Accounting Standards Board prefers the direct method over the indirect method. The FASB allows both methods to be used. The discretion is left up to the company to decide which method to use. The