Cash Flow Statement - Essay Example

Stakeholders can use the statement to understand the ratio of debt and owners’ equity and associated changes over time (Khan & Jain 2007, p. 5.5).The different financial statement relates to each other. The cash flow statement, for example, relates to the income statement in that the two measure cash, though from different perspectives. The cash flow statement measures the real movement of cash while the income statement measures cash on an accrual basis (Wahlen, Baginski, & Bradshaw 2010, p. 155). The fact that changes in values in the statement of financial position influences the cash flow statement establishes a relationship between the two.

An increase in value of fixed assets, for example, results in cash outflow in the cash flow statement (Golin & Delhaise 2013, n.p.).The main advantage of the direct method for the income statement is its direct reporting of “cash receipts and cash payments” and this makes it simple to understand (Warren, Reeve, & Duchac 2013, p. 644). The advantage of the indirect method is its reconciliation of the “difference between net income and net cash flow from operating activities” (644).