Q3Managerial Economics & Financial Accounting
Question
4 marks
How will you calculate cash flows from operating activities by direct and indirect method. Explain with example. (2+2=4)
Answer
Operating cash flow can be calculated directly by tracking cash receipts/payments or indirectly by adjusting net income for non-cash items.
1. Direct Method: Lists actual cash receipts and payments. Example: Cash received from customers minus Cash paid to suppliers and employees. 2. Indirect Method: Starts with Net Profit and adjusts for non-cash items. Example: Net Profit + Depreciation Changes in Working Capital.