ONLINE CASH FLOW STATEMENT TEMPLATE
Indirect Method
This type of cash flow statement is called Indirect because it proceeds not from the actual cash receipts and payments but from the net income which is adjusted to reconcile it with the net cash flow.
The figure for the net operating income (or loss) is taken from the income statement and adjusted for non-operating gains or losses, non-cash expenses and timing differences.
A Statement of Cash Flows shows the movement in cash flows over a specific period as classified under operating, financing and investing activities.
About 95% of organizations prefer the indirect method over the direct method because it shows the relationship between the 2 other important financial statements: balance sheet and income statement.
While the indirect method is more complex, it avoids the duplication of effort where an additional schedule is needed to reconcile net income disclosing cash-flows from operating activities if using the direct method.
Reasons one may be interested in cash flow statements:
- To know whether the company can cover payroll and other immediate expenses
- To know if the firm's has the ability to repay loans and other debt
- To know whether the business is financially sound
- To know whether the organization is able to afford compensation
Groups that are most interested in the information a cash flow statement will reveal are:
- Potential creditors and lenders
- Company’s shareholders
- Potential employees
- Potential investors
- Potential contractors
- Company’s accounting personnel
CASH FLOWS FROM OPERATING ACTIVITIES SAMPLE
Indirect Method
Net income ............................................................................300,000
Adjustments for:<br>
Depreciation and amortization.............................$12,500
Provision for losses on accounts receivable............2,000
Gain on sale of facility............................................-6,500
SUBTOTAL: ...........................................................8,000
Increase in trade receivables...............................-25,000
Decrease in inventories........................................32,500
Decrease in trade payables...................................-5,000
SUBTOTAL: ...........................................................2,500
Cash generated from operations........................310,500
Cash flows from investing activities<br>
Purchase of property, plant, and equipment.......-50,000
Proceeds from sale of equipment..........................3,500
Net cash used in investing activities...................-46,500
Cash flows from financing activities<br>
Proceeds from issue of common stock...............15,000
Proceeds from issuance of long-term debt.........17,500
Dividends paid.....................................................-4,500
Net cash used in financing activities...................28,000
Net increase in cash & cash equivalents.............................292,000
Cash & cash equivalents (beginning of period)...................208,000
Cash & cash equivalents at end of period.........................$500,000
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