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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Original Message:
Sent: 06-02-2021 10:44 AM
From: Nanditha James
Subject: Indirect method for calculating operating cash flow.
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,