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Statement of Cash Flows Indirect Method – The declaration of capital is one of the components of a business’s set of monetary statements and is utilized to expose the sources and uses of cash by a service. It presents details about money produced from operations and the results of numerous modifications in the balance sheet on a company’s cash position. Under the indirect approach of presenting the declaration of capital, the discussion of this declaration begins with earnings or loss, with subsequent additions to or deductions from that quantity for non-cash earnings and expense products, leading to net income offered by running activities.

Statement of Cash Flows Indirect Method

The format of the indirect technique appears in the copying. In the discussion format, cash flows are divided into the following general categories:

  • Cash flows from operating activities
  • Cash flows from investing activities
  • Cash flows from financing activities

The indirect method of discussion is popular, due to the fact that the information required for it is reasonably quickly put together from the accounts that a business usually maintains in its chart of accounts. The indirect method is less favored by the standard-setting bodies since it does not offer a clear view of how money flows through a company. The alternative reporting method is the direct method.

Declaration of Money Flows Indirect Method Example
For example, Lowry Locomotion constructs the following declaration of capital utilizing the indirect approach:

 

 

 

Lowry Locomotion
Statement of Cash Flows
for the year ended 12/31×1

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

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