Q1 Which methodthe direct method or the indirect methoddoes

the Jan Bell use to prepare its statement of cash flows? How do you
know? Describe the differences between the method used by the
company and the other, more commonly used method?

Direct Method
Direct Method disclose operating cash Inflows and operating
cash out flows by use in the operating activities of the cash flow statement under
the direct method the statement of cash flows reports net cash flows from
operations so the company use different tools in direct method like cash sale , cash
purchase , cash selling and administrative expense , cash income taxes etc

Indirect Method
Indirect Method uses net income as a starting point in the
computation of net cash flow from operating activities so the net cash flow from
operating activities fall In to three categories like non cash expenses , timing
differences and non operating gain and losses so in other words the indirect method
adjust net income for items that affected reported net income butt did not cash so
the company can use four steps in indirect method like starting with net income ,
add back no cash charges ,add back losses and subtract gain from investing or
financing activities and adjust for changes in operating related accounts
Under IFRS and US GAAP both direct and in direct method are
acceptable for financial reporting purpose so the direct method disclose more
information about company so company want to some information is disclose so
the mostly companies used in direct method and jan bell is also follow the indirect
method
The indirect method is most commonly used by companies so the
analyst can generally convert it to the direct format by following a simple three step
process like Aggregate all revenue and all expenses, Remove all non cash items

from aggregated revenues and expenses , converting accrual amount and cash flow
amount

Q2 Why do most companies prepare their statement of cash flows

on an indirect basis?
The most companies use indirect method to prepare the financial statement
because the companies want to some information is disclose Indirect Method uses
net income as a starting point in the computation of net cash flow from operating
activities so the net cash flow from operating activities fall In to three categories
like non cash expenses , timing differences and non operating gain and losses so in
other words the indirect method adjust net income for items that affected reported
net income butt did not cash so the company can use four steps in indirect method
like starting with net income , add back no cash charges ,add back losses and
subtract gain from investing or financing activities and adjust for changes in
operating related accounts
Q3