Question
Describe “Indirect” method of ascertaining Cash Flow from operating activities.
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Answer
Indirect Method of cash flow statment: In indirect method, the net income figure from the income statement is used to calculate the amount of net cash flow from operating activities. Since income statement is prepared on accrual basis in which revenue is recognised when earned and not when received therefore net income does not represent the net cash flow from operating activities and is necessary to adjust EBIT for those items which effect net income although no actual cash has been paid or received against them.
Indirect Method: Following is the indirect method formula which is used to calculate cash flow from operating activities.
Indirect Method: Following is the indirect method formula which is used to calculate cash flow from operating activities.
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