Preparing Cash Flow Statement Assignment Help

Direct and Indirect method of preparing Cash Flow Statement

Under direct method all the items appearing under accrual based income statement is converted into cash receipts and payments. It converts an accrual based income statement into a cash based income statement.

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Under the indirect method net income is adjusted for non cash and non operating charges. Thus noncash charges are adjusted for and a kind of reconciliation is done to arrive at cash outflow or inflow. It also includes changes in balance sheet accounts resulting from accrual accounting events.

Pro forma Cash Flow Statement: (INDIRECT METHOD)

1. Cash Flow from operating activities

Net income 2000

Noncash expenses

Depreciation expense 1000

Other noncash expenses 300

Schedule for Changes in working capital

Decrease (increase) in inventories (300)

Decrease (increase) in accounts receivable (300)

Increase (decrease) in accounts payable 250

Other (50)

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Cash Flow by operations (A) 2900

2. Cash Flow from investing activities

Purchase of property, plant, and equipment (1200)

Acquisitions of subsidiaries (4500)

Other investments, net 700

Cash Flow by investments (B) (5000)

3. Cash Flow from financing activities

Issue of debt 4000

Net issues of stock 3800

Dividends paid (800)

Cash Flow by financing activities (C) 7000

Net increase in cash and marketable securities (A+B+C)4900

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