Question 1

؟What are the three main sections of a Cash Flow Statement, and what do they represent

Accepted Answer

The three main sections of a Cash Flow Statement are:

Operating Activities: This section represents the cash inflows and outflows from the company’s primary business operations, including cash received from customers and cash paid to suppliers and employees. It reflects the company's ability to generate cash from its core activities.

Investing Activities: This section includes cash flows related to the acquisition and disposal of long-term assets and investments. Examples are purchases or sales of property, plant, equipment, and investments. It shows how the company is investing its cash to support its business growth and future operations.

Financing Activities: This section captures cash flows related to the funding of the business, such as issuing or repurchasing stock, borrowing, and repaying loans, and paying dividends. It indicates how the company finances its operations and growth through debt and equity.
    Operating Activities: This section represents the cash inflows and outflows related to the core business operations. It includes cash receipts from sales of goods and services, cash payments to suppliers and employees, and other cash expenditures directly tied to the primary business activities. It essentially shows how much cash is generated from the company's regular business operations.

Investing Activities: This section includes cash flows related to the acquisition and disposal of long-term assets and investments. Examples include purchases or sales of property, plant, and equipment, investments in other companies, and loans made to or collected from others. It reflects the company’s investment in its future operations.

Financing Activities: This section captures the cash flows related to the funding of the business. It includes transactions with the company’s owners and creditors, such as issuing or repurchasing stock, borrowing or repaying loans, and paying dividends. It indicates how the company finances its operations and growth.

Question 2

؟ What is the difference between the direct and indirect methods of preparing a Cash Flow Statement

Accepted Answer

The difference between the direct and indirect methods of preparing a Cash Flow Statement lies in how operating cash flows are reported:

Direct Method: This method lists all major cash receipts and cash payments. It directly shows the cash inflows from customers and cash outflows to suppliers, employees, and other operational expenses. This method provides a clear view of cash receipts and payments but can be more complex to prepare because it requires detailed cash transaction data.

Indirect Method: This method starts with net income from the income statement and adjusts for changes in non-cash items and changes in working capital components like accounts receivable and payable. It adjusts for items like depreciation, gains, and losses on asset sales, and changes in inventory levels. The indirect method is more commonly used because it is easier to prepare and provides a link between net income and net cash provided by operating activities.

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Cash Flow statement fundamentals

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How to Get The Certificate

1 Cash Flow Statements Concept Format and 13 Adjustments CA INTER By Saheb Academy

2 Cash Flow Statements Problem 1 Illustration 6 By Saheb Academy

3 Cash Flow Statements Problem 2 Illustration 7 By Saheb Academy

4 Cash Flow Statements Problem 3 Illustration 8 By Saheb Academy

5 Cash Flow Statements Problem 4 Illustration 2 By Saheb Academy

6 Cash Flow Statements Problem 5 Illustration 12 By Saheb Academy

7 Cash Flow Statements Problem 6 Practical Question 11 By Saheb Academy

8 Cash Flow Statements Problem 7 8 9 and 10 By Saheb Academy

9 Cash Flow Statements Problem 11 Illustration 11 By Saheb Academy

10 Cash Flow Statements Problem 12 Illustration 5 By Saheb Academy

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