FREE OPERATING CASH FLOW SAMPLE
Direct Method

An operating cash flow statement is a business financial statement that shows how cash moved during a specific accounting period (usually a year) by indicating whether a particular line item is a cash in-flow or a cash out-flow

A statement of cash flows can be classified under 3 activities:

  • Operating - principal revenue generation activity (purchase and sale of goods and services.) Direct and Indirect Methods
  • Investing - activity intended to generate income and cash flows in the long run.
  • Financing - activity related to transactions with stockholders and creditors (purchase of treasury stock, issuance of share capital, dividend payments and others)

Direct and Indirect Methods of cash flow statement are used to report a corporation’s operational cash flow.

Difference between the Direct method and the Indirect method.

DIRECT METHOD - the cash flows from operating activities include the amounts for the lines: cash from customers and cash paid to suppliers. It must provide a reconciliation of net income to the cash provided by operating activities, this reconciliation is done automatically under the Indirect method.

Net cash flows from operating activities under the Direct Method are determined the following manner:

  • Take cash receipts from sales
  • Add interest plus dividends
  • Deduct cash payments for operating expenses, purchases, income taxes and interest.

INDIRECT METHOD - shows net income followed by the adjustments that are needed to convert the total net income to the cash amount from operating activities.

The indirect method is the preferred method used to prepare the statement of cash flows of most companies because it requires less information to prepare.


OPERATING CASH FLOW ACTIVITIES SAMPLE

Direct Method

 

Cash receipts from customers.......................... $9,160,000

Cash paid to employees.................................... -2,240,000

Cash paid to suppliers........................................-5,960,000  

Cash generated from operations..................................... 960,000  

   

Interest paid........................................................... -62,000  

Income taxes paid................................................ -340,000  

Net cash from operating activities..................................$558,000

   

Cash flows from investing activities

 

Proceeds from sale of equipment............................22,000

Purchase of property, plant, and equipment........ -116,000  

Net cash used in investing activities.............................. -94,000

   

Cash flows from financing activities  

 

Proceeds from issuance of long-term debt............ 100,000

Proceeds from issuance of common stock............ 200,000

Dividends paid........................................................ -90,000

Principal payments under capital lease obligation... -2,000

Net cash used in financing activities............................. 416,000

   

Net increase in cash & cash equivalents............................................. 672,000

Cash & cash equivalents at beginning of period.................................... 28,000

Cash & cash equivalents at end of period....................................... $1,000,000


Reconciliation schedule to accompany a statement of cash flows using the direct method.


Net income .......................................................................... $ ______________________


Adjustments to reconcile net income to net cash provided by operating activities:  

Depreciation and amortization $ ______________________  

Provision for losses on accounts receivable ______________________

Gain on sale of equipment (______________________)  

Increase in interest and income taxes payable ______________________

Increase in other liabilities ______________________

Increase in deferred taxes ______________________


Total adjustments .................................................................... ______________________


Net cash provided by operating activities ..............................$ ______________________


OBS: The formula used to calculate cash inflows and outflows has many variations.

An income statement is the form used to report revenues and expenses

Cash Flow Statement - Indirect Method

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