Review of the Direct Method Statement of Cash Flows and the Associated Teaching Implications

Two methods are used when reporting cash flows from operating activities: the direct method or the indirect method, both are acceptable from IAS with a preference of direct method. Thus, this paper examines which method of reporting the statement of cash flows provides useful information the decision makers rely on for decision making purposes. To achieve this aim, participants were selected from academic sector represented by universities professors. The study is based on the conceptual framework: qualitative characteristics of accounting information. To be useful, information must be relevant and represents faithfully what it claims to represent. In order to distinguish more useful financial information from those less useful, enhancing qualitative characteristics were examined. Results show that academic professors provide support for direct method of reporting cash flows over indirect method. The study sought to determine the effect of academic rank on these results. Evidence reveals that full and associate professors endorsed the preference of direct method more than assistant professors and lecturers. These results recommend the legislative bodies and entities to adopt the direct method in preparation the statement of cash flows.

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Arborista, Inc.: An Instructional Resource Case

Issues in Accounting Education ◽

10.2308/iace-50452 ◽

2013 ◽

Vol 28 (3) ◽

pp. 681-690 ◽

Cited By ~ 2

Author(s):

Marc P. Picconi ◽

Kimberly J. Smith ◽

Alexander Woods

Keyword(s):

Cash Flow ◽

Direct Method ◽

Cash Flows ◽

Integrated System ◽

Net Income ◽

Managerial Accounting ◽

Early Integration ◽

Operating Cash Flows ◽

Cash Flow Statement ◽

Statement Of Cash Flows

ABSTRACT: This deceptively simple case is intended for use as early as the first day of an M.B.A. core accounting course or as a focused review for an undergraduate accounting course. It achieves three primary objectives: accelerating student learning about the statement of cash flows, emphasizing the importance of both the cash flow statement and the income statement in valuation and capital markets, and introducing the three primary financial statements as an integrated system. The case also features the use of the direct method of presenting operating cash flows, both as a pedagogical tool and to allow interested instructors to increase their focus on that method. We have found that students benefit from the early integration of the cash flow statement, as well as the ability to clearly understand how operating cash flows are similar to—and different from—net income. Finally, the case provides an optional managerial accounting module for instructors who teach a course that integrates financial and managerial accounting.

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A Research Note On The Issue Of Non-Articulation And The Method Used To Calculate Net Operating Cash Flow

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i1.1048 ◽

2011 ◽

Vol 25 (1) ◽

Cited By ~ 2

Author(s):

Terry J. Ward ◽

Jon Woodroof ◽

Benjamin P. Foster

Keyword(s):

Cash Flow ◽

Indirect Method ◽

Direct Method ◽

Accounting Standards ◽

Cash Flows ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Font Size ◽

Operating Cash Flow ◽

Statement Of Cash Flows

Using a proxy for nonarticulation, prior researchers found evidence that many companies using the indirect method of reporting net cash flow from operations have a significant level of nonarticulation.  The purpose of this study is to determine if companies using the direct method of reporting net cash flow from operations experience significantly lower levels of nonarticulation than companies that use the indirect method of reporting net cash flow from operations.  Results show that companies using the direct method have significantly less nonarticulation than companies using the indirect method.  This finding suggests that the Financial Accounting Standards Board (FASB) should consider requiring companies to use the direct method of preparing the Statement of Cash Flows.

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Relevant Cash Flows Information for Engineering & Construction’ Companies Investors

International Journal of Engineering & Technology ◽

10.14419/ijet.v7i3.2.14428 ◽

2018 ◽

Vol 7 (3.2) ◽

pp. 322

Author(s):

Yurii Pogorelov ◽

Valentina Dubovaya ◽

Anastasia Bilousova

Keyword(s):

Direct Method ◽

Open Data ◽

Cash Flows ◽

Global Business ◽

Financial Reports ◽

Construction Companies ◽

Global Engineering ◽

Rating Method ◽

Statement Of Cash Flows ◽

Operating Activities

Purpose of the article is to analyze and improve approaches of making financial reports about cash flows to provide relevant cash flows information for Engineering & Construction’ companies existing and potential investors. There were such research approaches used as analysis of financial reports, rating method and empirical analysis on open data. There is a fact found about non-compliance by Biggest Global Engineering & Construction’ companies of IAS 7 about reporting cash flows from operating activities using the direct method found. It was suggested to make all parts of statement of cash flows by direct method. It is grounded by topicality of such cash flows information for existing and potential investors, including making them modeling cash flows. It is recommended to expand using some indicators such as «Net Cash Flows from Operating Activities», «Net Cash Flows from Investing Activities», and «Net Cash Flows from Financing Activities» and «Cash Flows Receipts as the most objective one for characterizing economical activity of entities while making Global Business ratings. It is suggested to continue researches in direction of analyzing the best practical approaches to make report of Cash Flows from Operating, Investing & Financing Activities to generalize the best international experience.

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Does Industry Affect the Cash Flow Statement Presentation Format?

Accounting and Finance Research ◽

10.5430/afr.v7n3p1 ◽

2018 ◽

Vol 7 (3) ◽

pp. 1 ◽

Cited By ~ 1

Author(s):

Xiaojie Christine Sun ◽

Yang Xu ◽

Lijuan Zhao

Keyword(s):

Indirect Method ◽

Individual Component ◽

Direct Method ◽

Cash Flows ◽

Presentation Format ◽

High Tech ◽

Incremental Information ◽

Statement Of Cash Flows ◽

The Individual ◽

Future Cash Flows

The statement of cash flows of a business can be presented by using either the direct method (DM) or the indirect method (IM). In United States, only a small portion of businesses use the DM. Compared to the IM, the DM has been shown to provide incremental information in predicting future cash flows. Furthermore, the DM can also improve the ability to compare the individual component of cash receipts and cash payments among similar companies over a period of time. This study finds that firms choosing the DM tend to be in high tech industries.

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Predicting Operating Cash Flows and Earnings Using the Direct Method Compared to the Indirect Method Statement of Cash Flows

SSRN Electronic Journal ◽

10.2139/ssrn.3103452 ◽

2016 ◽

Cited By ~ 1

Author(s):

Richard Kent

Keyword(s):

Indirect Method ◽

Direct Method ◽

Cash Flows ◽

Operating Cash Flows ◽

Statement Of Cash Flows

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Cooper Machinery, Inc.

Journal of Business Case Studies (JBCS) ◽

10.19030/jbcs.v1i4.4930 ◽

2005 ◽

Vol 1 (4) ◽

pp. 13-26

Author(s):

Frank J. Grippo ◽

John Ted Ibex ◽

Sia Nassiripour

Keyword(s):

Direct Method ◽

Balance Sheet ◽

Cash Flows ◽

Time Value Of Money ◽

Analytical Skills ◽

Accrual Basis ◽

Statement Of Cash Flows ◽

Analytical Tools ◽

The Relationship ◽

Cash Basis

This case emphasizes one of the most important analytical tools that an accounting graduate should possess. It is the opinion of the authors that an accounting graduate should be able to convert from the accrual basis of accounting to the cash basis. A solid understanding of this area and others, such as time value of money concepts, is necessary in order for one to consider himself/herself accounting literate. The purpose of this case is to evaluate and help students understand the relationship between the balance sheet, statement of income, and statement of cash flows in addition to the theory and mechanics of converting from the accrual basis of accounting to the cash basis. Furthermore, it helps students develop analytical skills and form an opinion about the usefulness of the direct method presentation of the statement of cash flows compared to the indirect method. Thus students are forced to complete missing information on the balance sheet, statement of income, and statement of cash flow by deducing which transactions occurred. The assumption used in the case is that the company employs the accrual basis of accounting. There were no cash sales or expenses paid in cash.

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Analyzing the figures of consolidated statement of cash flows of the world's biggest publicly traded oil and gas corporations

Economic Analysis Theory and Practice ◽

10.24891/ea.19.6.1101 ◽

2020 ◽

Vol 19 (6) ◽

pp. 1101-1120

Author(s):

O.V. Shimko

Keyword(s):

Public Sector ◽

Cash Flow ◽

Oil And Gas ◽

Cash Flows ◽

Annual Reports ◽

Capital Expenditures ◽

Publicly Traded ◽

The Public ◽

Statement Of Cash Flows ◽

Oil And Gas Companies

Subject. The article investigates key figures disclosed in consolidated cash flow statements of 25 leading publicly traded oil and gas companies from 2006 to 2018. Objectives. The focus is on determining the current level of values of the main components of consolidated statement of cash flows prepared by leading publicly traded oil and gas companies, identifying key trends within the studied period and factors that led to any transformation. Methods. The study draws on methods of comparative and financial-economic analysis, as well as generalization of materials of consolidated cash flow statements. Results. The comprehensive analysis of annual reports of 25 oil and gas companies enabled to determine changes in the key figures and their relation in the structure of consolidated cash flow statements in the public sector of the industry. It also established main factors that contributed to the changes. Conclusions. In the period under study, I revealed an increase in cash from operating activities; established that capital expenditures in the public sector of the industry show an overall upward trend and depend on the level of oil prices. The analysis demonstrated that even integrated companies’ upstream segment prevail in the capital expenditures structure. The study also unveiled an increase in dividend payments, which, most of the time, exceeded free cash flows thus increasing the debt burden.

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