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Mian Muhammad Atif (PhD)Assistant Professor PhD – Critical Finance Studies (Massey University, New Zealand)Master of Business Administration - Finance (University of Peshawar, Pakistan)PostGraduate Diploma in Management (Massey University, New Zealand)Bachelor in Commerce (University of Peshawar, Pakistan)

© Mian Muhammad Atif (PhD)

Department of Management Sciences

STATEMENT OF CASH FLOW - ADDITIONAL

(DIRECT METHOD)Saturday, April 22, 2023

© Mian Muhammad Atif (PhD)2

CASH FLOW – OPERATING ACTIVITIES


Under the direct method, companies compute net cash provided by operating activities by adjusting each item in the income statement from the accrual basis to the cash basis.

An efficient way to apply the direct method is to analyze the itemsreported in the income statement in the order in which they are listed.


FIRST THING FIRST


CONVERT INCOME STATEMENT FROM ACCRUAL BASIS TO CASH BASIS


CASH FLOW FROM OPERATING ACTIVITIES – DIRECT METHOD


STEP 2: INVESTING AND FINANCING ACTIVITIES

•ANALYZE CHANGES IN NONCURRENT ASSET AND LIABILITY ACCOUNTS AND RECORD AS INVESTING AND FINANCING ACTIVITIES, OR DISCLOSE AS NONCASH TRANSACTIONS.


STATEMENT OF CASH FLOWS - COMPLETE

Mian Muhammad Atif (PhD)Assistant Professor PhD – Critical Finance Studies (Massey University, New Zealand)Master of Business Administration - Finance (University of Peshawar, Pakistan)PostGraduate Diploma in Management (Massey University, New Zealand)Bachelor in Commerce (University of Peshawar, Pakistan)

© Mian Muhammad Atif (PhD)

Department of Management Sciences

STATEMENT OF CASH FLOWS - ADDITIONAL

(INDIRECT METHOD)

Saturday, April 22, 2023

9


The indirect method (or reconciliation method) starts with net income and converts it to net cash provided by operating activities.

the statement of cash flows prepared by the indirect method starts with net income. It then adds or deducts items to arrive at net cash provided by operating activities.


FIRST THING FIRST


INDIRECT METHOD


STEP 1 – ADD BACK NON CASH CHARGES

•Depreciation Expense

STEP 2 – TAKE OUT ANY LOSSES/GAINS ON DISPOSAL OF FIXED ASSETS


STEP 3 - CHANGES TO NONCASH CURRENT ASSET AND CURRENT LIABILITY ACCOUNTS


STEP 4 -

•analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or disclose as noncash transactions

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