Wal-Mart is a multinational retail company listed on New York Stock Exchange and headquartered in Arkansas, US. The primary difference between the direct and indirect method is involved in cash flows from operating activities. In the direct method, cash flows arising from cash payments to stakeholders and cash collection from customers are included in operating activities. In indirect method, operating activities includes net income and the adjustments required to convert the income from accrual to cash basis. Wal-Mart Stores Inc. used the indirect method to prepare its statement of cash flows.
The first section of cash flow statements is cash flow from operating activities. This section starts with net income or loss that is then adjusted for non-cash revenues and expenses items such as depreciation expense and gain or loss on exchange of fixed assets. After adjusting non-cash items, working capital changes are calculated which includes changes in current assets and current liabilities for example, changes in account receivable, account payable and inventories.
Second section of cash flows statements is cash flow from investing activities. This section determines the cash inflows and cash outflows resulting from the investments in or sale of fixed assets. This section assists the company in determining the extent to which expenditures are incurred to generate income. Examples include purchase of fixed assets or investment instruments and, sale of fixed assets and investments in stocks or bonds.
Third section is cash flow from financing activities that represent the changes in cash flows resulting due to the transactions with owners and long-term loan providers. Examples of line items in this section include cash proceeds from share issues, dividend payments and changes in long-term liabilities (Flood, 2014).
Management of the company follows the FASB Accounting Standard Codification 230 that provides an extensive guidance for classification in the statement of cash flows of cash inflows and outflows as operating, investing or financing activities.
Wal-Mart Stores Inc. is expanding its plant assets every year that could be evidenced from its investing activities section of cash flows statements. The company purchased the plant and equipment worth $12,174 million and $13,115 million in 2015 and 2014 respectively. This indicates that the company it’s expanding its operations through investment in fixed assets and opening of new stores (Annual Report 2014: Wal-Mart, 2014).
References
(2014). Annual Report 2014: Wal-Mart. Arkansas: Wal-Mart.
Flood, J. M. (2014). Wiley GAAP 2015: Interpretation and Application of Generally Accepted Accounting Principles 2015. Hoboken: John Wiley & Sons.
