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    Cash flow statement-direct & indirect method

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    Prepare statement of cash flows (indirect method) using balance sheet data. Presented
    below are comparative balance sheets for Millco, Inc., at January 31 and February
    28, 2004.

    Then write a 350-500 word paper discussing the difference sections of the statement of cash flows assist different sets of users. Also discuss the merits of using the direct method vs the indirect methods of preparation.

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    Solution Preview

    Dear student,
    Statement of cash flow shows the movement of cash from operating, investing and financing activities of the company. It shows the short term solvency of the company. It shows the company's flow of cash both inflow of cash and cash equivalents and outflow of cash and cash equivalents.

    Cash flow statement shows the ability of the firm to be solvent in the short term. Cash flow statement helps the entrepreneur to monitor the payment policies and make him to be diligent in the collections from the debtors to make the firm more financially stable. cash flow statement shows actual amount of cash received and cash paid and the actual balance of cash at the end of the financial year. Therefore, cash flow statement ...

    Solution Summary

    The solution contains1. preparation of cash flow statement under indirect method 2. a write-up explaining different sections of cash flow statement and the users of each section of cash flow statement and 3.merits of preparing cash flow statement under direct method and indirect method.