Answer:
A. Only operating activities are presented differently.
Explanation:
Cash flow statement - a company report on sources of cash and their use in the reporting period, directly reflecting the company's cash receipts with classification by main sources and its cash payments with classification by main areas of use during the period. The report gives a general picture of production results, short-term liquidity, long-term creditworthiness and makes it easier to conduct a financial analysis of the company.
The direct method provides for the disclosure of information on the main types of gross cash receipts and payments. Â Information for compiling a statement of cash flows can be obtained from company accounts by adjusting sales, cost of sales and other items recognized in profit or loss.
The following advantages of this method are distinguished:
- A report created using this method shows the main sources of cash inflow and outflow direction;
- makes it possible to draw operational conclusions regarding the availability of funds for making payments on various current obligations;
- Direct binding to the budget of cash receipts and payments;
- displays the relationship between sales and cash revenue for the reporting period.
The disadvantage of this method is that it does not disclose the relationship between the income statement and cash flow. In addition, large companies carry out a lot of money transfers, therefore, without special software, each payment document would have to be classified manually.
The indirect method is to establish the differences between the net profit (loss) indicator of the reporting period, formed on an accrual basis and presented in the income statement, and the net cash flow from operating activities (increment of cash and cash equivalents for the period) calculated using cash method on the basis of the balance sheet (the difference between cash at the end and beginning of the reporting period). An indirect cash flow statement is most suitable for companies that record in accordance with IFRS using the transformation method and are not able to automate this process sufficiently. Using the indirect method, a cash flow statement can be compiled on the basis of the profit and loss statement, the balance sheet at the beginning and at the end of the reporting period, as well as some additional data on flows that are usually used in the transformation of statements. No data from accounting systems on real cash flows are required, and no automation of reporting is required. This method allows you to clearly show what kind of money content each line of the income statement has.
