Operating Cash Flows - Indirect Method

Question 1

What are the major differences between the Indirect and Direct method of preparing the SCF?

Answer 1

• Direct Method requires additional schedule to reconcile Net Income to OCF, Indirect doesn’t
• Indirect Method requires additional disclosure for Interest and Income Taxes, Direct doesn’t

Question 2

Are cash flows on SCF gross or net of tax?

Answer 2

-Gross, overall cash effect of income taxes treated as an OCF item aggregated into one amount