Discussions: Indirect Method Vs. Direct Method And Horizontal Vs. Vertical Analysis
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.
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.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.
Text BOok: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2016). Financial accounting: Tools for business decision making (8th ed.).
· Chapter 12: Statement of Cash Flows
· Chapter 13: Financial Analysis: The Big Picture.