Net income is not the same as net cash provided by operating activities. Net cash provided by operating activities is usually significantly larger than net income. In general, what causes this difference? Do you think that the Indirect Method illustrates this better than the Direct Method? From the reader\'s perspective (not the preparer\'s perspective), which method of preparation do you prefer?
Solution
Yes it is true that net Income is not same as the Cash Flow from the operating Activities instead it is more than the net Income.
The reaon being non cash expenses like Depreciation which is added back to the net Income
Deferred tax expenses(Income) which is added(dedeucted), Increase , decrease in Current assets or increase, decrease in current liabilities etc etc.
Hence the Cash provided by operating Activities is more than the net Income.
I will prefer The Indirect Method to prepare cash flow statement as it clearly indicates the non tax expenses which have already been added back to the net income and provides the reader a clear picture of net income and cash flows of the company.
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Net income is not the same as net cash provided by operating activitie.docx
1. Net income is not the same as net cash provided by operating activities. Net cash provided by
operating activities is usually significantly larger than net income. In general, what causes this
difference? Do you think that the Indirect Method illustrates this better than the Direct Method?
From the reader's perspective (not the preparer's perspective), which method of preparation do
you prefer?
Solution
Yes it is true that net Income is not same as the Cash Flow from the operating Activities instead
it is more than the net Income.
The reaon being non cash expenses like Depreciation which is added back to the net Income
Deferred tax expenses(Income) which is added(dedeucted), Increase , decrease in Current assets
or increase, decrease in current liabilities etc etc.
Hence the Cash provided by operating Activities is more than the net Income.
I will prefer The Indirect Method to prepare cash flow statement as it clearly indicates the non
tax expenses which have already been added back to the net income and provides the reader a
clear picture of net income and cash flows of the company.
