Cash Flow Statement Coursework Example | Topics and Well Written Essays - 1000 words

Cash Flow Statement - Coursework Example When the business makes repayment of principal loan, the repayment is made from the net income or earnings. This transaction is not included in the cash flow because they are going toward settlement of business loan. Net income is prepared based on the general accepted accounting principles (GAAP). Under the accrual accounting principle, expenses are matched with revenues earned in that accounting period (Rich, 2010, p. 56). For instance, a business purchase and pays for merchandise in May, assuming that the merchandise remain in inventory until it is sold in November (end of the accounting period of the business). To this end, business’ net operating cash flow decreases in May when the business pays for the merchandise. However, the net income figure decreases in November when the cost of goods sold is matched with the November sales. Question 2 The main difference between direct and indirect method of cash flow is on the presentation of net cash flow from operating activities. Operating cash flow under direct cash flow statement adds major operating cash receipts and subtracts major operating cash payments. The cash payments are subtracted cash receipt of the business to arrive at the net cash flow from operating activities. The two companies are consistent in using the indirect method of cash flow statement. In addition, EA GAMES and UBISOFT recorded an increase in the net operating cash flow activities due to increase in net income and proper management of working capital.