Accounting/Cash Flows?

Question

Does anyone know which noncash activities are reported in the statement of cash flows and how are they reported?

Answer 1

Under the direct method, no noncash activities are reported. This is since the direct method only presents cash activity. Under the indirect method there are quite a few. The indirect method uses net income from the income statement and adjusts for changes on the balance sheet. Starting with net income the following general changes would be made:

1. A decrease for any increase in assets (other than cash). This is since an increase in an asset (like A/R) would indicate cash spent or not collected.

2. An increase for any decrease in assets (again other than cash). This is the opposite of 1.

2. An add back of depreciation/ammortization as listed on the income statement. This is since depreciation/ammortization decreases an asset, but involves no outlay of cash

3. An increase for any increase in liabilities. This is since an increase in liabilities implies financing from another source. For example an increase in accrued payroll liabilities implies a labor expense on the income statement that has not yet resulted in cash spent.

4. A decrease for any decrease in liabilities. The opposite of 3.

5. An increase for any increase in capital surplus or common equity. This indicates proceeds from sale of stock. Likewise a decrease for a decrease in these numbers.

Interestingly, as your question references the indirect method, it is not acceptable under GAAP to present only an indirect statement. A direct statement must be presented. Of course for most ad hoc analysis and accounting classes, an indirect statement will not only suffice, but it will save you lots of time.

Answer 2

Simplest explanation - The company has made more margin on sales but as yet has not received the money from the purchaser. These are Accounts Receivable, or simply money owed by customers. There are several other reasons for this happening but the one above is the simplest.

Answer 3

Depreciation and Amortization expenses are added back to the cash