Maria Devi Bertha Vasthy 13.30.0126 Manajemen Cash Flow ... · Cash Flow Cash flow,
Direct Cash Flow
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Transcript of Direct Cash Flow
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Financial Statements - Cash Flow
Computations - Direct Method
The Direct Method
The direct method is the preferred method under FASB 95 and presents cash flows from
activities through a summary of cash outflows and inflows. However, this is not the
method preferred by most firms as it requires more information to prepare.
Cash Flow from Operations
Under the direct method, (net) cash flows from operating activities are determined by
taking cash receipts from sales, adding interest and dividends, and deducting cash
payments for purchases, operating expenses, interest and income taxes. We'll examine
each of these components below:
Cash collectionsare the principle components of CFO. These are the actual
cash received during the accounting period from customers. They are defined as:
Formula 6.7
Cash Collections Receipts from Sales
= Sales + Decrease (or - increase) in Accounts Receivable
Cash payment for purchasesmake up the most important cash outflow
component in CFO. It is the actual cash dispersed for purchases from suppliers
during the accounting period. It is defined as:
Formula 6.8
Cash payments for purchases = cost of goods sold +increase (or - decrease) in inventory + decrease (or - increase) in accounts payable
Cash payment for operating expensesis the cash outflow related to selling
general and administrative (SG&A), research and development (R&A) and other
liabilities such as wage payable and accounts payable. It is defined as:
Formula 6.9
Cash payments for operating epenses = operating epenses +increase (or - decrease) in prepaid epenses + decrease (or - increase) in accrued liabilities
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Cash interest isthe interest paid to debt holders in cash. It is defined as:
Formula 6.10
Cash interest = interest epense !increase (or + decrease) interest payable + amorti"ation of bond premium (or - discount)
Cash payment for income taxesis the actual cash paid in the form of taxes. It is
defined as:
Formula 6.11
Cash payments for income taes
= income taxes + decrease (or - increase) in income taxes payable
The diagram below demonstrates how net cash flow from operations is derived using the
direct method.
Though the methods used differ, the results are always the same.
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CFO and CFF are the same under both methods.
There is an inverse relationship between changes in assets and changes in cash
flow