Term Papers on Concepts

Term Paper Title	Concepts
# of Words	799
# of Pages (250 words per page double spaced)	3.2

Concepts
a)   Financial statements concerned with cash funds are usually known as cash flow statements. Statement of cash flows reports a firm’s major cash inflows and outflows for a period. It reports the cash flows by three types of activities: cash flows from operating, investing and financing activities.

        There are two alternatives methods for reporting cash flows from operating activities in the statement of cash flows. These methods are: (1) the direct method, and (2) the indirect method.

        The direct method reports the sources of operating cash and the uses of operating cash.

        The indirect method reports the operating cash flows by beginning with net income and adjusting it for revenues and expenses that do not involve the receipt or payment of cash.

          Here, Jan Bell, uses the direct method to prepare its statement of cash flows. This can be clearly seen from the statement of cash flow under the cash flows from the operating activities provided by the Jan Bell Marketing Inc. The net income is not reported at the beginning of the cash flow statement and the transactions are not adjusted for revenues and expenses that do not involve the receipt and payment of cash. It has also no non-cash expenses added to the Jan Bell’s statement of cash flow.

         The manner of reporting cash flows from investing and financing activities is the same under the direct and indirect methods. In addition, the direct and indirect method will report the same amount of cash flows from the operating

         activities. However, the methods differ in how the cash flows from the operating activities data are obtained, analyzed and reported. The direct method reports the sources of operating cash, in which, the major source of cash is cash received from customers and the major uses of operating cash contains cash paid to supplier for merchandise and services and cash paid to employees for wages. The differences with the indirect method is that it reports the operating cash flow beginning with the net income and adjusting it for revenues and expenses that do not involve the receipt or payment for cash. It focuses on the differences between net income and cash flows from operations. Indirect method shows the relationship between the income statement, balance sheet and the statement of cash flow.

b)         Many companies prepare their statement of cash flow in an indirect basis because it is easier to determine the net income (from income statement) rather than sales to all individual customers and payment...

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