scholarly journals Does Industry Affect the Cash Flow Statement Presentation Format?

2018 ◽  
Vol 7 (3) ◽  
pp. 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.

scholarly journals The Preference of Direct or Indirect Methods in Preparing the Statement of Cash Flows in Decision Making: An Academic Perspective

2016 ◽  
Vol 8 (2) ◽  
pp. 206
Author(s):  
Abdullah, S. Hardan ◽  
Majed, A. Qabajeh ◽  
Aymen, M. Alshanti
Keyword(s):  
Decision Making ◽  
Indirect Method ◽  
Direct Method ◽  
Cash Flows ◽  
Decision Makers ◽  
Academic Rank ◽  
Indirect Methods ◽  
Statement Of Cash Flows ◽  
Qualitative Characteristics ◽  
Academic Sector

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.

scholarly journals The usefulness of operating cash flow information: Does format matter?

2012 ◽  
Vol 10 (1) ◽  
pp. 44-52 ◽  
Author(s):  
Shadi Farshadfar
Keyword(s):  
Cash Flow ◽  
Indirect Method ◽  
Direct Method ◽  
Cash Flows ◽  
Indirect Methods ◽  
Flow Information ◽  
Operating Cash Flow ◽  
Future Cash Flows ◽  
Direct And Indirect Methods ◽  
Level Analysis

This study investigates whether the direct method of presenting cash flows from operations is superior to the indirect method in its ability to forecast future cash flows. It also considers the effect of industry characteristics on the relative usefulness of direct and indirect methods of cash flow presentation. The study, which uses a sample of Australian firms, finds that both the direct and indirect methods improve the forecast of future cash flows. However, the indirect method of reporting cash flows from operations is more relevant than the direct method in predicting future cash flows. Evidence from the industry-level analysis overall reinforces the main results.

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

2011 ◽  
Vol 25 (1) ◽  
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

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">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.<span style="mso-spacerun: yes;">&nbsp; </span>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.<span style="mso-spacerun: yes;">&nbsp; </span>Results show that companies using the direct method have significantly less nonarticulation than companies using the indirect method.<span style="mso-spacerun: yes;">&nbsp; </span>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.</span></span></p>

Arborista, Inc.: An Instructional Resource Case

2013 ◽  
Vol 28 (3) ◽  
pp. 681-690 ◽  
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.

scholarly journals Back To Basics: Algebraic Foundations Of The Statement Of Cash Flows

2013 ◽  
Vol 7 (1) ◽  
pp. 93-98
Author(s):  
Donald T. Joyner ◽  
Jean-Marie Banatte ◽  
V. Reddy Dondeti
Keyword(s):  
Indirect Method ◽  
Business Students ◽  
Balance Sheet ◽  
Cash Flows ◽  
Black Box ◽  
Net Income ◽  
Undergraduate Level ◽  
Accounts Receivable ◽  
Accounts Payable ◽  
Statement Of Cash Flows

The indirect method for preparing the statement of cash flows, as described in many standard textbooks, involves an item-by-item approach, telling you to add to or subtract from the net income, the increases or decreases in the balance sheet items, such as accounts payable or accounts receivable. Many business students, especially at the undergraduate level, find these black-box-rules confusing. In recent years, several articles have appeared in the accounting literature, exploring the link between the algebraic foundations and the enumeration of items in the statement of cash flows. In this paper, an explanation is provided, through an analysis of the basic algebraic equation of the balance sheet, for the black-box-rules of the indirect method in a simple and concise manner.

scholarly journals Finding an Easier Way to Explain the Statement of Cash Flows

2021 ◽  
Vol 11 (3) ◽  
pp. 25
Author(s):  
Seung Hwan Kim
Keyword(s):  
Indirect Method ◽  
Financial Statements ◽  
Cash Flows ◽  
Financial Accounting ◽  
The Other ◽  
Net Income ◽  
Public Companies ◽  
Difficult Time ◽  
Statement Of Cash Flows ◽  
Operating Activities

The statement of cash flows is one of the required financial statements of public companies, and thus is required of all accounting majors. After learning the other required financial statements in an introductory financial accounting course and, again, in the first intermediate accounting course, accounting majors learn how to prepare the statement of cash flows in the second or last intermediate accounting course. Most accounting majors find the statement of cash flows significantly more difficult to learn than any other financial statements. Especially, students find it most difficult to understand the indirect method of preparing the statement of cash flows. Preparing the statement of cash flows using the indirect method, students go through the most difficult time, specifically, doing the adjustments that are made to net income to reconcile to cash flows from operating activities.In this paper, presented is a different way to explain the principles of indirect method of preparing the statement of cash flows with a focus on the reconciliation of net income to cash flows from operating activities. Different from the explanations in the textbooks available in the market, the approach presented in the paper is preferred by all the students who were taught the statement of cash flows. Also, pointed out in the paper are a few things that students are easily confused of in learning the statement of cash flows.

scholarly journals Which is a Better Method for Reporting Cash Flows from Operating Activities-Direct or Indirect Method?

2020 ◽  
pp. 19-28
Author(s):  
Dumisani Rumbidzai Muzira
Keyword(s):  
Indirect Method ◽  
Direct Method ◽  
Cash Flows ◽  
Financial Statement ◽  
Accounting Profession ◽  
Ongoing Debate ◽  
Argument Map ◽  
Qualitative Argument ◽  
Better Than ◽  
Operating Activities

This paper is a response to the ongoing debate in the accounting profession on whether the direct method is better than the indirect method when reporting cash flows from operating activities. The debate has its roots from the standard setters who prefer the direct method and are even debating on whether to make the direct method mandatory. The contention being that the direct method is a better method than the indirect method when reporting cash flows from operating activities since the disaggregation of its components suggests more disclosure. More disclosure in financial statements has been a cry from the financial statement users such as the creditors and investors. This qualitative argument will therefore show the merits of both the direct and the indirect               method before getting to a conclusion on which method is better than the other. Further, it is a contribution to the ongoing debate in the accounting profession that can guide the standard setters as they deliberate on the possibility of making the direct method mandatory. In addition, a contention map and an argument map are used as roadmaps of the ideas being discussed in this study.

scholarly journals International Harmonisation Of Accounting Standards: The Case For A Mandatory Requirement For The Direct Method Of Reporting Operating Cash Flows

2011 ◽  
Vol 3 (3) ◽  
Author(s):  
Christine Yap
Keyword(s):  
New Zealand ◽  
Cash Flow ◽  
Financial Reporting ◽  
Indirect Method ◽  
Direct Method ◽  
Accounting Standards ◽  
Cash Flows ◽  
International Accounting ◽  
International Accounting Standards ◽  
Operating Cash Flows

Even though standard setters have now embraced cash flow statements there remains ambivalence as to the best format (i.e. direct or indirect method) for disclosing cash flow from operations. In 1987 the FASB asserted that information about the gross amounts of cash receipts and cash payments is more relevant than information about the net amounts of cash receipts and payments. Yet apart from Australia and New Zealand, most standard setting bodies, including the International Accounting Standards Board (IASB), permit a choice between the direct and indirect methods. When given this choice, the vast majority of companies have opted for the indirect method of reporting operating cash flows (OCFs).This difference in OCF presentation between jurisdictions is relevant in this era of harmonisation of accounting standards: both the European Union parliament and the Australian Financial Reporting Council have decided to set 2005 as the target date for the adoption of standards produced by the IASB. Underlying this policy of verbatim adoption of international accounting standards, presumably is the belief that adoption of standards issued by the IASB would lead to an improvement in financial reporting. Such a view was presented recently when current Australian accounting standards were criticised as being deplorable by the Chairman of the IASB, David Tweedie (Australian Financial Review, 5 August 2003, p.1). Yet by reviewing the literature on cash flow statements, this paper argues that not all Australian standards would be improved by adopting international standards. In the case of cash flow reporting, maybe the IASB should review its standard and accept the lead of Australia and New Zealand, by not permitting choice of method and mandate the direct method: surely an intended consequence of harmonisation is to narrow areas of difference and variety in accounting practice.

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