Statement of Cash Flows: Preparation, Presentation, and Use

Chapter 4 OPERATING SECTION PRESENTATION DIRECT OR INDIRECT?

Both the direct method and the indirect method are currently acceptable for presenting operating cash flow information. The decision about how to present operating cash flow information is one of the most controversial aspects of FASB and the International Accounting Standards Board (IASB) work on revising financial statement presentation requirements. This chapter examines each method and discusses the advantages of each. Presentation examples help you evaluate the existing presentation options. The next chapter will examine other issues related to the operating section of the statement of cash flows.

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

•    Recall what is included in the operating section.

•    Identify differences in the direct and indirect method of reporting operating cash flows.

•    Identify current reporting requirements when using the direct and the indirect methods.

•    Identify the advantages of the direct and of the indirect methods.

•    Recall the steps used to derive operating cash flows using the direct and the indirect method.

An understanding of both operating presentation methods is critical because when the standard- setting bodies reconsider the reporting requirements for the statement of cash flows one of the issues they will address is whether to require the direct method.

Operating Section Presentation

The operating section of the ...