- This topic has 1 reply, 2 voices, and was last updated 4 months ago by
.
- Posts
Is it true that:
1) SOFP is prepared using accrual accounting which means that we record our assets and liabilities when they occur and not when cash is received or paid ?
2) Is owner’s equity also prepared based on accrual accounting and what about the share capital from shareholders when it is recorded?
3) SOPL is also prepared using accrual accounting which means our revenue and expenses are recorded when they occur and not when cash is received or paid?
4) Direct method calculates the cash inflows and outflows of the business regular operations?
5) Indirect method is however opposite, it is when we start with profit and make cash adjustments until we get net cash flow from operations but do we need to deduct interest and tax because we paid them during the year, is that Right?
Accrual accounting is simply recording income and expenditure when they occur, not when the cash is received or paid.
That automatically results in what you state in (3) and automatically results in there being receivables/prepayments and creditors/accruals in the SOFP.
It is not that the SOPL and the SOFP are prepared using accrual accounting – that happens as a result of my first sentence.
Share capital is recorded when the shares are issued.
Your last two statements related to the Statement of Cash Flows and are correct (and, of course, both end up giving the same result as I explain in my free lectures).
- You must be logged in to reply to this topic.