DIRECT AND

INDIRECT METHODS
OF CASH FLOW
STATEMENT
 DIRECT METHODS
• Adding the individual operating cash flows and then subtracting the
individuals operating cash outflows.
• It shows the whole process of cash outflows (expenses) and cash
inflows(revenue and income) .
• Its use in making SCI(statement of comprehensive income).
• Only takes the cash transactions into account and produces the cash
flow from operations.
• There is a simple technique you can use
for you to identify if a transaction is
under on operating, financing or
investing.
That technique is as follow:
 Current Liability
___________________
Current Asset
Non Current Liability

Non Current Asset Equity

• First box
- One(1)year life span (cash, supplies, pre- insurance)
• Second box
- CL (accounts payable , notes payable)
- NCL (mortgage)
• Third box
- More than one(1) year life span.
- Investing
• Fourth box
- Capital, withdrawals/ drawing
 INDIRECT METHODS
• Uses net income as the base and converts the income into cash flow
through the use of adjustments.
• The adjustment begins with profit followed by the addition f
expenses and charges(e.g., depreciation) that do not entail cash
payments.
• Under the indirect method, since net income is a starting point in
measuring cash flows from operating activities, depreciation expense
must be added back to net income.
Example of transaction using the Indriect Method
Profit ₱10,000
Noncash Expense (e.g., Depreciation) ₱3,000
₱13,000
(Increases in Current Asset Accounts) ₱4,000
₱9,000
Decreases in Current Liability Accounts ₱6,000
₱15,000
Decreases in Current Asset Accounts ₱2,000
₱17,000
(Increases in Current Liability Accounts) ₱3,000

Cash flow from Operating Activities ₱14,000

Thank You and God bless!