AFM101 Lecture Notes - Lecture 9: Accrual, Cash Flow, Income Statement

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AFM101 Full Course Notes
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AFM101 Full Course Notes
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Chapter 5: reporting and interpreting cash flows cont"d. There are two approaches to compute cash flows from operating activities. Subtracts operating cash disbursements (outflows) from cash collections (inflows) Adjust the previously calculated accrual net income from the income statement to compute cash net income. Under both methods cfo is always the same. Ifrs prefers direct but most companies do indirect because it is cheaper. Indirect method shows how cash cfos differ from net income. Most companies prefer the indirect method because it is. Focuses on differences between net earnings and net cash flow from operating activities. Net earnings and cfo differ because i/s is prepared under the accrual concept. Net earnings includes both cash and non-cash revenues and expenses. We need to remove non cash revenues and gains and non cash expenses and losses to adjust accrual profit. Indirect method starts with net earnings and then removes the non-cash elements to compute the cfo (adjust the net earnings)

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