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  • Apr 30, 2009, 11:09 PM
    jriggs1110
    Statement of cash flows indirect method
    I need Help with the statement of cash flows in accounting. It's the indirect method. I have no clue what operating, financing, and investing expenses are, and whether you add or subtract them. My instructor has picked the worst book ever and I am in total need of help.
  • Apr 30, 2009, 11:55 PM
    morgaine300

    This is another post I did on the indirect method:
    https://www.askmehelpdesk.com/accoun...ws-187709.html

    As noted in that post, this can be difficult because cash flows can involved all types of different things and no one could cover all the possibilities. There's some commonalities among textbooks for beginning cash flows, but even then, too many differences.

    As for operating, investing and financing:
    Operating: for indirect, hopefully the other post explains this
    Investing: anything involving all non-current assets
    Financing: anything involving all non-current liabilities and equity

    The above is simpler than it seems when you're learning it. Think of your accounting equation:
    Assets = Liabilities + Equity
    The left side is what the company invests in and is therefore investing activities. The right side is how they financed them, and therefore are financing activities.
    However, current assets and current liabilities are not included because they are considered to be related to day-to-day operations. (For example, accounts payable is not considered "financing" - it's just a short-term extension of credit for daily operations.)

    The investing and financing sections are always direct. The direct versus indirect thing is only applied to operations.

    As a note, it's not operating, investing and financing expenses. They are activities. This is about cash flows, not about expenses. Yes, you can spend cash on expenses, but there's a whole lot more to cash inflows/outflows than just expenses. So don't call it that. They're activities.

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