AGANA, ANDRIA R.

IA3_MODULE1_TASK 2

The importance of statement of cash flow, It shows how the money or the cash and cash
equivalents moved in and out of the business. It summarizes the operating, investing, and
financing activities of an entity. It provides the information about the cash receipts and payments
of an entity during a period. According to what I read it also explains the changes in the balance
sheet accounts and the cash effects of the accrual-basis amounts reported in the statement of
comprehensive income. The two types of computation of methodology in cash flow are direct
method and indirect method. Direct method shows in details the major inflows and outflows of
cash and cash equivalent in a company. Cash receipts and payments are listed one by one and the
difference is the net cash flow from the operating activities. The next one indirect method, it
reports the net cash flows from operations that involves converting accruals-basis net income to a
cash basis. There are guidelines listed or offered for the adjustments of net income to cash basis.

SHARING

According to my classmate the statement of Cash Flow is a component of financial

statement where the owner can see the company’s cash inflow and outflow. By examining the
cash flow the owner can see if he has more income than cash outflow. It is the guide to see if the
company is doing well or not. Cash flow is the indicator if the company is growing or if the
company has the capacity to invest on the business for it to grow. Cash flow are classified into
three parts, first is the operating activities which shows the cash receipts and payments of the
company. Second is investing activities which show the acquisition of non-current asset such as
property, plant, and equipment. Third is financing activities which show the cash inflows and
outflows on entity’s capital. There are two types on how to present operating activities, the direct
method which provides more detailed information of cash receipt and payment of the company.
The other is the indirect method which provide accrual basis and it will always begin on net
income and then the adjustments will follow to convert the income to cash basis.