How to Use the Indirect Cash Flow Method
Start by determining your operation’s net income and then converting the accrual net income into operating activity cash flows.
Some of the line items on a typical indirect method cash flow statement include any increase in accrued expenses payable, depreciation expense, decrease in accounts receivable, and deducting increases in inventory.
Here’s an example of an indirect cash flow statement for the sample company ABC Corporation
Company: ABC Corporation
Statement of Cash Flows (Indirect Method)
For the Year Ended December 31, 2022
Operating Activities:
Net Income $50,000
Adjustments for:
Depreciation and Amortisation $10,000
Increase in Accounts Receivable ($5,000)
Decrease in Inventory $2,000
Increase in Accounts Payable $3,000
Net Cash Provided by Operating Activities $60,000
Investing Activities:
Purchase of Equipment ($20,000)
Sale of Investments $8,000
Net Cash Used in Investing Activities ($12,000)
Financing Activities:
Payment of Long-Term Debt ($10,000)
Proceeds from Issuance of Stock $5,000
Net Cash Provided by Financing Activities ($5,000)
Net Increase in Cash $43,000
Cash at Beginning of Year $20,000
Cash at End of Year $63,000
In this example, the cash flow statement is divided into three sections: operating activities, investing activities, and financing activities. Use this example to create your own detailed cash flow statement.
