- Direct and indirect methods must produce the same bottom-line (cfo, cfi, cff) numbers. 2. GAAP requires indirect method for statement of cash flows (to reconcile cash to net income from the I/S). Most companies don’t bother reporting a direct-method cf/s.
cpk123 Wrote: ------------------------------------------------------- > Now maybe this is the answer to the question > plaguing us: Proceeds from the Sale has the Gain / > loss built into it, but unlike in the indirect > method – where that gain / loss had made it into > the Net Income component (and had to be backed > out) – here no such adjustment has occurred thus > far. > > Am I correct in my understanding? If not, please > do let me know where I am wrong, so I can still > understand and learn from here on now. > > As to your question about CFI with gain/loss > provided > > The Sale Price +/- Gain/Loss would go into the CFI > as Proceeds from the Sale of Asset. > > CP Exactly right on the first part above. Indirect is a back-into-it method, direct is only include relevent stuff from the outset. This is why I say understand the concept, not just the rules, so that if they give you a question that isn’t laid out like Schweser/Stalla it won’t phase you. For the CFI part, if you have “sales price”, that is the proceeds. If they give you book value, then combine that with gain/loss to get proceeds. And as darien noted above, most companies use the indirect method.
cpk123, I think you got it. Gain/loss of asset sales does not come into play in the direct method, but it does in the indirect method, and this may be a good exam question. Dreary
wait, so under direct method the gain/loss from sales is not included in CFO ??