Set up the statement – When you’re calculating cash flow using the indirect method, you’ll start by recording the net income for a given period, before subtracting or adding non-cash expenses, losses, and gains. It’s much easier to understand the indirect method of cash flow by looking at how to prepare a cash flow statement in depth: How to prepare a cash flow statement using the indirect method By contrast, the direct method lists all your business’s cash inflows and outflows during the reporting period, thereby allowing you to calculate your net cash flow from your business’s operating activities. Put simply, any changes in asset and liability accounts that may affect your cash balances throughout the reporting period are added or subtracted from your net income at the beginning of the period, providing your operating cash flow. The indirect method uses changes in your balance sheet accounts to calculate cash flow from operating activities. There are two ways to generate a cash flow statement: the direct method and the indirect method. What is the indirect method of cash flow? Check out our comprehensive guide to find out more about the cash flow statement indirect method and get a little more information about the direct method vs. Both methods provide you with the same result, but their methodology differs in several significant ways. When you need to prepare a cash flow statement, there are two options – direct method or indirect method.
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