Know about Cash Inflow and Outflow through Cash Flow Statement (Indirect Method)

Cash Flow is basically means cash inflows and cash outflows in any business. Cash Flow statement can be divided in three categories: 1. cash flow from operating activities that include sales and expenses, or profit-making operations. 2. Investing activities 3.financial activities.

Through Cash Flow Statement, you can find out from where the money came and where it was spend. Thus, to analyze cash flow, it is essential to look for cash flow from operating activities. This process will help you to find out, whether the organization generated cash or you need to put more cash in the business. If negative cash flow from operating activities is shown for longer period of time, it foretells the failure of business. Therefore, the businessman should take necessary steps to correct the negative Cash Flow and increase the account receivables. It can be safely said that the cash flow statement gives the true picture of the account.

Cash Flaw from Operating Activities

Cash Flow from operating activities equals cash inflow from sales during specific period minus the cash outflows for sales expenses during that period of time, such as payroll and other employee expenses, payments to clients and suppliers, rent payments, tax payments and utilities payment. According to the Accounting principal, Cash flow amount should equal cash based profit, during accounting process.

Cash Flow from Investing Activities

• This part include capital expenditures, meaning disbursements, which are not charged to expenses in Accounting but are capitalized as an asset on the balance sheet, such as fixed asset (property, plant & machinery etc.) purchases, proceeds from fixed asset sales, purchase of liquidities like stocks and shares and cash inflows from sale or redemption of investments.

Cash Flow from Financial Activities

Cash Flow from Financial Activities includes equity financing or related to debts such as cash inflows from notes, loans or other debt tools, payments on debt instruments, cash inflow from equity or insurance of stock, return of capital and so on.

Cash Flow Statement can be prepared by two methods, such as Direct Method & Indirect Method.

The Preparation of Indirect Method Cash Flow Statement begins from operating activities with Net Income derived from the Income Statement or Profit & Loss Account. If there are any changes shown in the balance sheet during specific period then, net income is adjusted accordingly. The changes adjustments are basically made for accounts such as, income tax payables, accounts payable, accrued wages payable, amortization and depreciation, inventory, pre paid insurance and account receivable.

Though both processes offer same result but formulation procedure is different for either method.

You can also prepare your own Cash Flow Statement from Cash Flow (Indirect Method) templates given below:

 Cash Flows Statement (Indirect Method)

XYZ COMPANY STATEMENT OF CASH FLOW
FOR THE YEAR ENDED

					December 31
Debits					200_		200_
Cash					$0		$0
Accounts receivable					0		0
Merchandise inventory					0		0
Equipment					0		0
Totals					$0		$0
Credits
Accumulated depreciation, equipment					$0		$0
Accounts payable					0		0
Income taxes payable					0		0
Common stock, $__ par value					0		0
Contributed capital in excess of par
	value, common stock				0		0
Retained earnings					0		0
Totals					$0		$0
	Sales (all on credit)						$0
	If credits to Accounts Receivable
	during period were receipts
	from customers
	Cost of goods sold				$0
	If purchases of merchandise were
	on credit
	If debits to Accounts Payable
	during period resulted from
	payments for merchandise
	Depreciation expense				0
	Other operating expenses (cash)				0
	Income taxes expense				0		0
	If the only decreases in Income
	Taxes Payable were payments
	of taxes
	Net income						$0
	Equipment purchased for cash						$0
	Shares of stock issued						0
	Price per share						$0
	Par value of common shares						0
	Cash dividends declared and paid						0

Working Paper for Statement of Cash Flows (Indirect Method)

For Year Ended        mm dd year
					Analysis of Change
			December					December
			31, 200_		Debit		Credit	31, 200_
Balance Sheet – Debits:
	Cash		0					0
	Accounts receivable		0	b	0			0
	Merchandise inventory		0	c	0			0
	Equipment		0	g	0			0
			0					0
Balance Sheet – Credits:
	Accum. depr., equip.		0			f	0	0
	Accounts payable		0	d	0			0
	Income taxes payable		0			e	0	0
	Common stock, $__ par		0			h	0	0
	Contributed capital in
	in excess of par,
	common stock		0			h	0	0
	Retained earnings		0	i	0	a	0	0
			0					0
Statement of cash flows:
Operating activities:
	Net income			a	0
	Inc. in accts. rec.					b	0
	Inc. in mdse. inv.					c	0
	Dec. in accts. pay.					d	0
	Inc. in taxes payable			e	0
	Depreciation expense			f	0
Investing activities:
	Payment for equipment					g	0
Financing activities:
	Issued com. stk.			h	0
	Pmts. of cash div.					i	0
					0		0

Operating Cash Flow & Net Income

Gross sales		$0
Cost of goods sold		0
Selling expenses		0
Notes payable		0
Depreciation		0
Interest rate		0%
Tax rate		0%