Financial reports, especially cash flow, are one of the most important aspects for parties outside the company, but they are still related. For example, investors or shareholders and company managers can find out the company’s business performance and know the benefits it will get. This information can tell the ability of an entity within the company to get cash flow in the future. The cash flow statement can also inform investors about dividends or increases in the value of shares, which if they can be obtained through Irena’s Bookkeeping. Through this report, various parties related to the company can read whether the company’s performance is leading in a positive direction or not. Only then can they make decisions regarding the continuation of the relationship with the company.
In preparing a cash flow statement, companies can present it in two types, namely directly and indirectly. The information contained in the two types of reports is no different. However, what makes the difference is the method or method of preparation. The advantage of this method of preparing direct cash flow statements is that the company can find out where the funds are obtained and how they are used. However, the drawback is that the process of finding cash flow data is more difficult to perform and the cost of collecting it tends to be more expensive. As for the indirect preparation method, cash flow statements are prepared after the financial statements consisting of balance sheets and profit and loss have been prepared in advance. Unlike the direct method, this method of preparation does not need to be classified as a cash transaction activity. Rather, it is prepared based on the accounts in the financial statements.
For cash flow statements using the direct method, the preparation process is carried out directly through the bank book or company cash. Therefore, the recording of each transaction is directly classified into 3 types of company activities, such as operations, investment, and funding. The purpose of classifying cash transactions is none other than so that their preparation becomes easier. The advantage that a company can get when preparing reports using the indirect method is that the recorded information is more focused on the difference between net income and cash flow from operating activities. So, companies that want to know the relationship between profit and loss data, cash flow, and balance sheet can use the indirect method of preparation.