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【正文】 o creditors as interest on borrowed money Indirect method SCF reconciles ine with cash flow from operation Δcash = Δcurrent L+ Δnoncurrent L+ ΔE Δ current A (other than cash) Δnoncurrent A Δcash = [Δcurrent L Δ current A (other than cash) ]+ [Δnoncurrent L+ ΔE] –[Δnoncurrent A] Op. Fin. Inv. Indirect method SCF reconciles ine with cash flow from operation Net Ine is accrualbased, when we calculate ine, we do not care whether cash has been received or paid But current assets and current liabilities accounts are impacted when we calculate ine, ., we debit account receivable and credit revenue when finishing a sales activity Indirect method SCF reconciles ine with cash flow from operation So in the example above, ine is higher than cash flow from operation because this transaction increases ine by increasing revenues, but does not increase cash because we debit account receivable and no cash is collected yet. Therefore, to get to the balance of cash from ine, we subtract the increase in account receivable account. This procedure confirms to the cash equation in which increase (positive change) in current assets other than cash decrease cash flow from operation. Indirect method SCF reconciles ine with cash flow from operation The indirect method: Net ine + depreciation ? Increase in current assets accounts + decrease in current assets accounts ? decrease in current liabilities accounts + increase in current liabilities accounts = Cash flow from operation Notes to financial statements on cash flows Is cash the king? Cash is the ultimate payoffs to capital providers Established finance theory told us the the value of a firm is the pre
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