Cash Flow Statement Indirect Method - Made Simple 📊 Interactive Learning Experience
Cash Flow Statement
Indirect Method - Made Simple
📊 Interactive Learning Experience
💡 What is Cash Flow Statement (Indirect Method)?
The indirect method starts with Net Income and adjusts it to show actual cash flows. Think of it as converting "paper profits" into "real cash"!
Key Concept: We add back non-cash expenses (like depreciation) and adjust for changes in working capital.
ABC Company - Cash Flow Statement
🏭 Cash Flow from Operating Activities
Net Income
$50,000
Adjustments for non-cash items:
+ Depreciation Expense
$15,000
+ Amortization
$5,000
Changes in working capital:
- Increase in Accounts Receivable
($8,000)
- Increase in Inventory
($12,000)
+ Increase in Accounts Payable
$6,000
Net Cash from Operating Activities
$56,000
🏢 Cash Flow from Investing Activities
- Purchase of Equipment
($25,000)
+ Sale of Investments
$10,000
Net Cash from Investing Activities
($15,000)
💰 Cash Flow from Financing Activities
+ Bank Loan Received
$20,000
- Dividends Paid
($8,000)
- Loan Repayment
($5,000)
Net Cash from Financing Activities
$7,000
📊 Net Change in Cash
Operating Activities
$56,000
Investing Activities
($15,000)
Financing Activities
$7,000
Net Increase in Cash
$48,000
Cash at Beginning of Year
$25,000
Cash at End of Year
$73,000
🎯 Key Learning Points
Operating Activities
Start with net income, add back non-cash expenses, adjust for working capital changes
Investing Activities
Cash flows from buying/selling long-term assets and investments
Financing Activities
Cash flows from borrowing, repaying debt, and equity transactions
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