ONLINE CASH FLOW STATEMENT TEMPLATE
Indirect Method

This type of cash flow statement is called Indirect because it proceeds not from the actual cash receipts and payments but from the net income which is adjusted to reconcile it with the net cash flow.

The figure for the net operating income (or loss) is taken from the income statement and adjusted for non-operating gains or losses, non-cash expenses and timing differences.

A Statement of Cash Flows shows the movement in cash flows over a specific period as classified under operating, financing and investing activities. 

About 95% of organizations prefer the indirect method over the direct method because it shows the relationship between the 2 other important financial statements: balance sheet and income statement. 

While the indirect method is more complex, it avoids the duplication of effort where an additional schedule is needed to reconcile net income disclosing cash-flows from operating activities if using the direct method.

Reasons one may be interested in cash flow statements:

  • To know whether the company can cover payroll and other immediate expenses
  • To know if the firm's has the ability to repay loans and  other debt
  • To know whether the business is financially sound
  • To know whether the organization is able to afford compensation

Groups that are most interested in the information a cash flow statement will reveal are:

  • Potential creditors and lenders
  • Company’s shareholders
  • Potential employees
  • Potential investors
  • Potential contractors
  • Company’s accounting personnel


CASH FLOWS FROM OPERATING ACTIVITIES SAMPLE

Indirect Method


Net income ............................................................................300,000


Adjustments for:<br>  

Depreciation and amortization.............................$12,500 

Provision for losses on accounts receivable............2,000 

Gain on sale of facility............................................-6,500

SUBTOTAL: ...........................................................8,000


Increase in trade receivables...............................-25,000

Decrease in inventories........................................32,500  

Decrease in trade payables...................................-5,000 

SUBTOTAL: ...........................................................2,500


Cash generated from operations........................310,500


Cash flows from investing activities<br>


Purchase of property, plant, and equipment.......-50,000  

Proceeds from sale of equipment..........................3,500 

Net cash used in investing activities...................-46,500


Cash flows from financing activities<br>


Proceeds from issue of common stock...............15,000 

Proceeds from issuance of long-term debt.........17,500

Dividends paid.....................................................-4,500  

Net cash used in financing activities...................28,000


Net increase in cash & cash equivalents.............................292,000

Cash & cash equivalents (beginning of period)...................208,000


Cash & cash equivalents at end of period.........................$500,000


Operating Cash Flow - Direct Method

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