In the video in the Learning Activity “Understanding the Statement of Cash Flows” Tony Bell mentions an easy way to determine whether the indirect or direct method is used in developing the Statement of Cash Flows. What does he say this is? Conduct your own research and list two companies that use either the indirect method or the direct method. Provide a link to each company’s Statement of Cash Flows, and list two advantages for the method that you prefer.
Understanding the Statement of Cash Flows
Introduction
In this video, Tony Bell walks through an analysis of the statement of cash flows. Reference his earlier videos for a review of construction of the statement of cash flows (the direct versus indirect method). Take notes in your Learning Journal as you watch and discuss any questions related to this activity in Social Learning.
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Answer preview
A healthy business ensures it gets its income from the debtors, and it pays its debt every month. It measures the cash position, profitability, and strength of a company. The management and other parties like investors use the cash flow statement to understand the long-term future outlook of an organization (Bradbury, 2011). In other words, it allows the organization management to summarize the amount of the cash entering and to leave the business, giving them more information about the amount of the working capital that is present for a given period, either a month, half a year, or a year (Bradbury, 2011).
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