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Reporting Cash Flows

From Operating Activities

An enterprise is required to report cash flows from operating activities using either direct method or indirect method.

Direct Method

Under this method, gross cash receipts and gross cash payments for the major items ale disclosed, such as cash receipts from customers and cash paid to suppliers.

Indirect Method

Under the indirect method, profit and loss account is adjusted for (i) the effects of transactions of non-cash nature such as depreciation, amortization, deferred taxes, loss on sale of fixed assets and unrealized foreign exchange gains and losses, (ii) changes during the period in inventories and operating receivables and payables, and (iii) for all other items for which the cash effects are shown either in financing or investing activities.

From Investing and Financing Activities

An enterprise is required to report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. The cash flows from operating, financing and investing activities are to be reported on a net basis.

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