IGNOU ECO 14 2017 - Explain the procedure of calculating cash flow from operating activiti

Question

Explain the procedure of calculating cash flow from operating activities

14 Apr 2018

Answer :

Word Count : 423

To calculate Cash Flow from Operating Activities, you can use either the Direct Method or the Indirect Method. Here's a breakdown of both: --- ### 1. Indirect Method This method adjusts net income for non-cash items and changes in working capital. #### Steps: 1. Start with Net Income - Obtain net income from the income statement. 2. Add Non-Cash Expenses - Depreciation and Amortization: These are non-cash expenses, so add them back. 3. Adjust for Gains and Losses - Gains on Sale of Assets: Subtract (since they increase net income but do not affect operating cash flow). - Losses on Sale of Assets: Add (since they decrease net income but do not affect operating cash flow). 4. Adjust for Changes in Working Capital - Increase in Current Assets (e.g., Accounts Receivable,

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