Reporting cash flows from operating activities

An enterprise can report cash flows from operating activities using any one method of the following:

The Direct methods: Whereby major classes of gross cash receipts and gross cash payments are disclosed

The indirect method: Whereby the profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.

Enterprises are encouraged to report cash flows from operating activities using the direct method. The direct method provides information which may be useful in estimating future cash flows and which is not available under the indirect method.

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