An enterprise can report cash flows from operating activities using either of the following methods:

Direct methods: Major classes of gross cash receipts and gross cash payments are disclosed.

Indirect method: The profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and incomes or expenses associated with investing or financing cash flows.

Enterprises are encouraged to report cash flows from operating activities using the direct method. The direct method provides information that may be useful in estimating future cash flows and which is not available under the indirect method.

Cash flow from operating activities is a classification of cash flow. Learn the basics of Cash Flow Statement, its objectives, and classifications in this article: Cash Flow Statement (CFS)

Frequently Asked Questions

What are cash flows from operating activities?

Cash flows from operating activities refer to the movement of cash and cash equivalents due to the company's operations. This includes revenue earned, as well as expenses paid.

Why is it important to report cash flows from operating activities?

It is important to report cash flows from operating activities because it provides insights into a company's liquidity and overall financial health. This information can be used by investors, creditors, and other stakeholders to make informed decisions about a company's future.

How are cash flows from operating activities calculated?

Cash flows from operating activities are calculated by taking net income and adjusting it for non-cash items and changes in working capital. The resulting figure is then reconciled with the change in cash and cash equivalents on the balance sheet.

What are some common non-cash items that are included in cash flows from operating activities?

Non-cash items that are typically included in cash flows from operating activities include depreciation and amortization, stock-based compensation, and deferred income taxes.

How do you report cash flows from operating activities?

Cash flows from operating activities are typically reported as part of the income statement. They are also included in the cash flow statement, which is a supplemental financial statement that provides a more comprehensive view of a company's liquidity and financial health.

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