CMA Study Group

Indirect method for calculating operating cash flow.

  • 1.  Indirect method for calculating operating cash flow.

    Posted 13 days ago
    Hi All,
    Can someone explain how to calculate operating cash flow using the indirect method?
    reference question :
    Ironwood Company's net income is $399,000. During the year accounts receivable increased $196,000 and accounts payable decreased $56,000. Using the indirect method of preparing the statement of cash flows, what amount will be reported as cash provided by operating activities?
    answer - 147000

    Regards,


  • 2.  RE: Indirect method for calculating operating cash flow.

    Posted 12 days ago
    Ironwood Company's net income is $399,000. During the year accounts receivable increased $196,000 and accounts payable decreased $56,000. Using the indirect method of preparing the statement of cash flows, what amount will be reported as cash provided by operating activities?

    net income is $399,000-(accounts receivable increased $196,000)-(accounts payable decreased $56,000)
    399000-196000-56000=147000


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    HOSSAM FATHI
    Vice President
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  • 3.  RE: Indirect method for calculating operating cash flow.

    Posted 12 days ago
    dear

    For  cash flow calculation keep below in mind

    Asset-when asset decreases u need to add back to net income-When Asset increase reduce from net income
    liability-When decrease reduce from net income-when increased add to net income

    So in this que
    3,99000-196000-56000=147000

    I hope this help


    Regards
    Farzeen Ahmed

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    Farzeen Ahmed
    Accountant
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  • 4.  RE: Indirect method for calculating operating cash flow.

    Posted 12 days ago
    Format for Indirect method Cashflow. (operating)

    Net Income  
    Add : 
    No Cash items (Depreciation, Amortization, Provisions)

    Adjust:
    Non Operating Gains and Losses(Finance or Investing)

    Add:
    Changes in Working Capital.

    Cashflow from Operations.


    Increase in Accounts receivables means Compared to last year we have more credit sales, so less cash inflow. So the net income 399000/- we were suppose to realize in cash but received only (399000-196000) = 203000/-

    Decrease in Accounts payable means compared to last year we have less credit purchase, So more cash outflow. So out of the  net cash we received (203000/-) we will pay 56000/- . So net Cash is 147000/-




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    Mohammed Nadeem
    Accountant
    Vi Sigma Apparel Group FZE
    Abu Dhabi
    United Arab Emirates
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  • 5.  RE: Indirect method for calculating operating cash flow.

    Posted 12 days ago
    Thank you all! 
    Your explanations truly help.

    Best Regards