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Chapter 16: Cash is King - Page 16.10

Indirect Cash Flow Method

An alternative cash flow method, called indirect, projects cash flow by starting with net income and adding back depreciation and other non-cash expenses, then accounting for the changes in assets and liabilities that aren't recorded in the income statement.

This methodology produces a Sources and Uses of Cash statement as shown on the following page. The results should be identical, for either direct or indirect methods, because the underlying cash flow is identical.

The Indirect Method Produces Sources and Uses of Cash

The indirect method starts with net income and then adjusts for all the sources and uses of cash that aren't part of the income calculation. Results should be the same for either direct or indirect. (Amounts shown in thousands. Numbers may be affected by rounding.)

 

Copyright © Timothy J. Berry, 2006. All rights reserved.