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Approaches to Preparation of Cash Flow Statement

Direct Method and Indirect Method

Direct Method

Cash flow from Operating Activities


Examples- Cash sales of goods and services xxxx
Advances from customers xxxx
Collection from customers xxxx
Payment for materials and services (xxxxx)
Any taxes and duties (xxxxx)

Cash flow from Investing Activities


Examples- Sale of fixed assets xxxx
Purchase of fixed assets (xxxx)

Cash Flow from Financing Activities


Example-Sale of shares and bonds xxxx
Redemption of debentures (xxxxx)
Buyback of shares (xxxxx)
Payment of interest/dividends (xxxx)
Net increase/decrease in cash xxxx
Opening cash and cash equivalents xxxxx
Closing cash and cash equivalents xxxxx
Indirect Method- There will be a change in the way Cash from Operating Activities
are calculated and other components will remain the same.

Cash flow from Operating Activities


Profit before income tax xxxx
+ Depreciation and amortization xxxx
+Provision for doubtful debts/bad debts xxxx
-Interest/dividend income (xxxxx)
-Gain on sale of assets (xxxxx)
+ loss on sale of assets xxxx
Operating profit before working capital changes
Adjustment for working capital changes xxxx
Cash generated from Operating Activities xxxx
Income tax paid (xxx)
Net cash generated from Operating Activities xxxxxx
Cash Flow from Financing Activities
Example-Sale of shares and bonds xxxx
Redemption of debentures (xxxxx)
Buyback of shares (xxxxx)
Payment of interest/dividends (xxxx)
Net increase/decrease in cash xxxx
Opening cash and cash equivalents xxxxx
Closing cash and cash equivalents xxxxx

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