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.

Download this template for additional instructions.

The content and templates are provided for informational purposes only and are provided as-is and as available basis. You should not construe any such information or other material as legal, tax, investment, financial, or other advice.
All content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. For questions or advice regarding your business’s specific circumstances, please consult your business financial advisor. Nothing in the site constitutes professional and/or financial advice, nor does any information on the site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. Divvy is not a fiduciary by virtue of any person’s use of or access to the site or the templates provided herein. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on the site before using the templates provided or making any decisions based on such information or other content. You agree not to hold Divvy, its affiliates or any third party service provider liable for any possible claim for damages arising from your use of the templates provided herein or any decision you make based on information or other content made available to you through the site.