Direct/Indirect Statement of Cash Flow

We use the beginning balance sheet, the ending balance sheet and the income statement to calculate the Direct Statement of Cash Flow. The Indirect Statement of Cash Flow, which gets the same OCF answers as the Direct, uses only the Income Statement and the changes in three balance sheet accounts:

  • Inventory (Changes to Current Assets excluding changes to cash)
  • Receivables  (Changes to Current Assets excluding changes to cash)
  • Current Liabilities (Accounts Payable)

So, for all the items listed on the Direct Statement of Cash Flow, we use the same set of calculations. We add and subtract the:

  • Beginning balance sheet account balances
  • Income statement accounts amounts and
  • Ending balance sheet account balances

e.g. Collection from Customers

The Collections from Customers is calculated by taking the Net Sales + Beginning Accounts Receivables (last month) - Ending Accounts Receivable (this month).

For example in May 2015: Sales ($321,912) + April Trade Debtors ($583,409) - May Trade Debtors ($656,918) = $248,403

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