Professional Documents
Culture Documents
Direct method
Lists cash receipts and disbursements by source/use of funds
Always used for investing and financing activities
Rarely used for operating activities
Operating CF
Investing CF
Indirect method
Financing CF
Only used for operating activities
Goal is to reconcile net income with cash from operations by
removing noncash items from net income and including
additional cash flows not in net income
Almost every company uses this method for operating
activities
Direct
Indirect
Direct
Direct
Indirect SCF
(60) Payments to
suppliers
(60)
Net Income
40
Operating CF
40
Operating CF
40
40
Indirect SCF
30
(60) Payments to
suppliers
10
Depreciation: $10
(10)
Net Income
30
Operating CF
40
Operating CF
40
(60) Payments to
suppliers
Depreciation: $10
(10)
Net Income
30
Indirect SCF
80 Net Income
(60) Add Deprec. Exp
Incr. in A/R
Operating CF
20
Operating CF
20
20 A/R
30
10
(20)
20
(60) Payments to
suppliers
Indirect SCF
80 Net Income
(50) Add Deprec. Exp
Incr in A/R
Incr in Inv
Depreciation: $10
10
(20)
(15)
(10)
Net Income
30
Operating CF
30
Operating CF
15
30
30
(60) Payments to
suppliers
Indirect SCF
80 Net Income
(50) Add Deprec. Exp
(10)
Net Income
30
Operating CF
30
25
KNOWLEDGE FOR ACTION
25 A/P
10
Incr in A/R
Incr in Inv
(20)
(15)
Incr in A/P
25
Operating CF
15
30
30