A Visualization of Teaching the Indirect Method for Computing Cash from Operations
Abstract
The Statement of Cash Flows (SCF) complements the Statement of Financial Position and the Statement of Comprehensive Income by explaining where the cash came from (cash receipts) and how the cash was spent (cash payments) International Accounting Standard (IAS) 7 requires companies to classify cash flows during the accounting period according to operating, investing and financing activities. IAS 7 also requires companies to report net cash flows from operating activities using either the direct method or the indirect method. Most companies adopt the indirect method in preparing the net cash flows from operating activities section of SCF As the indirect method is predominantly used by companies, it is important to ensure that students understand the indirect method of preparing SCF. This paper presents a visualization method to teach the indirect method in order to enhance the understanding of students.