Cash Flows Indirect Method - AccountingTools

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Cash Flow Statement Indirect Method

Under the indirect method of presenting the statement of cash flows, the presentation begins with net income or loss, with subsequent additions to or deductions from that amount for non-cash revenue and expense items, resulting in net cash provided by operating activities.

Statement of Cash Flows Indirect Method Example

For example, Eagle Construction Company constructs the following statement of cash flows using the indirect method:

Eagle Construction Company
Statement of Cash Flows
for the year ended 12/31x1

Cash flows from operating activities
Net income		$3,000,000
Adjustments for:
Depreciation and amortization	$125,000
Provision for losses on accounts receivable	20,000
Gain on sale of facility	(65,000)
		80,000
Increase in trade receivables	(250,000)
Decrease in inventories	325,000
Decrease in trade payables	(50,000)
		25,000
Cash generated from operations		3,105,000

Cash flows from investing activities
Purchase of property, plant, and equipment	(500,000)
Proceeds from sale of equipment	35,000
Net cash used in investing activities		(465,000)

Cash flows from financing activities
Proceeds from issue of common stock	150,000
Proceeds from issuance of long-term debt	175,000
Dividends paid	(45,000)
Net cash used in financing activities		280,000

Net increase in cash and cash equivalents		2,920,000
Cash and cash equivalents at beginning of period		2,080,000
Cash and cash equivalents at end of period		$5,000,000