Under which method the Cash Flow Statement is prepared

Solution

Cash Flow Statements can be prepared using 2 methods: 1.       Direct Method – takes the inflows and outflows directly. Example- sale of an asset increase the inflow and gets added in the opening cash 2.       Indirect Method – calculates the changes in the cash flows by adjusting the profit figure in the income statement. Example – depreciation is added in the profits since it is an expense which reduced profits but not cash. Therefore, this method attempts to find the cash flows by moulding the profits to the actual cash flows.