Just a quick question about CFO under direct method… assume a question provides sales and other necessary info to arrive at CFO under direct method. Do we subtract depreciation? If anyone has access to Schweser 3 AM, I am referring to question 48. I understand how to come to the answer based on Total Change in Cash = CFO + CFF +CFI, but I approached the ? via CFO direct method and excluded depreciation… I could be completely wrong, but I thought under direct method of CFO, non cash charges were not included and under indirect method we needed to add those back as they are NCC.
No, because it’s a non-cash charge. You don’t subtract it. You add it back under indirect.
Thanks for the follow-up… my post above should read do we add it back rather than subract… I could be reading their explanation wrong, but it looks like they added it back to arrive at 22,250… I left it out and came to 21,250
You are correct in your statment. direct is purly cash basis. no accounting mombo jumbo So i am guessing you got the answer wrong. Dont have that test.
No, you don’t add it back or subtract it. You take Sales and ignore depreciation altogether under direct method.