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Cash Flow by direct Method


The Statement of Cash Flow is a useful tool in business management. In many countries, it is a mandatory piece that is part of the accounting reports of a company in the same way that the balance sheet and income statement.
The cash flow statement is classified according to their origin into three groups, as follows:
a) Operating Activities;
b) Investing Activities;
c) Financing Activities.
The Cash flow statement by direct Method starts with the all the accounts obtained from the income statements, and the sum of the differences in assets, liabilities and net worth.
With the differences between the balance accounts by two consecutives dates, we can see that:
1) increase in asset accounts represents cash uses;
2) decreases in asset accounts represents cash source;
3) increase in liabilities represents a source of cash;
4) decrease in liabilities represents uses of cash.
To prepare the cash flow report, a worksheet is always useful to classify the balance sheet accounts, to make them comparable, as well as, the adjustments for possible subsequent events of the previous period.
How to calculate the Cash flow by direct method

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