This free template can help you use the indirect method to create your own company’s cash flow statement. If you want to use the direct method, use this template instead.
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What is the indirect method for a cash flow statement?
The indirect method is one of two accounting treatments used to create a cash flow statement. The following are important aspects of this method.
- The indirect method is used when the company is using the accrual basis of accounting instead of cash.
- The indirect method uses increases and decreases in balance sheet line items to modify the operating section of the cash flow statement from the accrual method to the cash method of accounting.
- The indirect method is the most commonly used method for the cash flow statement.
- This method is also preferred because the information is readily available by using a comparative incomes statement and balance sheet.
How to make an indirect cash flow statement
The cash flow statement is one of the three major financial statements. This statement summarizes the movement of cash in the company. There are two methods of calculating cash flow which are the direct method and indirect method. The cash flow statement is broken up into three section: Operating Activities, Investing Activities, and Financing Activities. Operating activities include anything related to the operations of the business.
Investing activities includes any investments the company is making which can include purchasing new equipment, buying stocks in other companies, or selling old equipment. Financing activities relates to how the company is being financed which can include a line of credit, bank loan, debt from investors, and repayment of any debt.
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