Indirect Method vs. Direct Method and Horizontal vs. Vertical Analysis

Week6DiscussionandRequiredResources.docx

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Week 6 Discussions and Required Resources

Part 1 and Part 2 must be at least 200 words

Part 1: Indirect Method vs. Direct Method

Financial statement preparers have two choices in preparing the statement of cash flows: the indirect method and the direct method. The indirect method is used extensively in practice even though the F.A.S.B. has expressed a preference for the direct method. Discuss the similarities and differences between the direct and indirect methods, and the advantages of using each method.

Your answer should illustrate understanding of the cash flow statement. A minimum of 100 to 200 words is required for your answer.

Part 2: Horizontal vs. Vertical Analysis

Discuss the horizontal and vertical analysis of a financial statement, and how each is used to help financial statement users make better decisions. Also, explain the liquidity, solvency, and profitability ratios introduced throughout the text. Describe how the ratios are used in analyzing a firm’s liquidity, solvency, and profitability. Your answer should illustrate understanding of financial statement analysis, including ratios. A minimum of 100 to 200 words is required for your answer.

Required Resource

Text

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2016). Financial accounting: Tools for business decision making (8th ed.). Retrieved from https://content.ashford.edu/

· Chapter 12: Statement of Cash Flows

· Chapter 13: Financial Analysis: The Big Picture

(Chapters 12-13 are in the attachments)

Recommended Resource

Website

http://bcs.wiley.com/he-bcs/Books?action=index&itemId=1118953908&bcsId=9831

(Chapters 12-13 PowerPoints are in the attachments)